$9 Seen as Bargain for Rite Aid (RAD), Cowen Says; Highlights Derivative Trade in Amerisource Bergen (ABC)
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Charles Rhyee from Cowen reiterated his Outperform rating on Walgreens Boots Alliance (NYSE: WBA) and thinks that $9 per share is a bargain price for Rite Aid (NYSE: RAD) a company that could be 20% accretive to WBA's CY16 EPS, before divestitures. Premarket, shares of RAD are trading at 8.03 implying a 12% return to the acquisition price.
WBA formally announced that it entered into an agreement to acquire RAD for $9/shr, or EV of about $17.2B, which implies a valuation multiple of 10.8x our CY16 adj. EBITDA est of $1.59B. Mgmt expects the acquisition to close in the second half of CY16.
Mgmt expects the transaction to be accretive in its first full year after closing and to realize synergies in excess of $1B. Rhyee believes the purchase multiple of 10.2x EBITDA is fair, though it could prove to be a bargain if synergies amount to more than the expected $1 billion. There is the most overlap between WBA and RAD in the Northeast, with eight states with greater than 25% concentration. States with particularly high concentration are DE, NH and RI. Rhyee modeled synergies of $1B and assumes that WBA will fund the acquisition with $2B of cash on hand and new 3% debt. Under these conditions, the deal is 20%, accretive or adds $0.99 to CY16 EPS of $4.95.
Reiterate Outperform
Beyond RAD, there may be an opportunity for supplier Amerisource Bergen (NYSE: ABC). If there is a change of control provision in place with MCK, a generic supplier for RAD, this could open the door to change generics supplier. If there is, the acquisition could positively impact ABC's CY16 EPS by up to 6%, and negatively impact MCK's CY16 EPS by up to 8%.
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