Investment Thesis
Based on lack of shareholder confidence caused by the previous merger agreement with Walgreens (NASDAQ:WBA), Rite Aid (NYSE:RAD) shares are beaten down and have 50% to 75% upside potential based on the value of their store base and PBM. Now is the time to bet on a positive outcome from the FTC review which will drive shareholder interest and a higher share price.
FTC Review
Let's start with why we should expect the FTC to approve the Asset Purchase Agreement ("APA") by 9/18. First, the FTC has the responsibility to ensure an adequate amount of due diligence is completed for any merger of this kind. I know many RAD investors are extremely frustrated that the review process took so long to run it's course; only to be replaced by the APA before an official approval or denial was given. I believe lingering frustration resulting from the previous merger failure has pushed the pessimism too far for the current deal. One outcome of this exhaustive review process is that the FTC should have given WBA/RAD clear expectations of what was needed to gain approval. With that knowledge, I believe RAD/WBA structured the latest agreement in a way that will get the go ahead from the FTC by 9/18. The wild card is that somehow these companies still haven't put an acceptable agreement together or that the FTC has additional delays. In my opinion, the chances of deal approval is 80%.
