X Drugstore chain Rite Aid (RAD) reported fiscal fourth-quarter results on Tuesday that topped views, while its takeover by Walgreens Boots Alliance (WBA) remains in doubt.
Estimates: Wall Street expected a 2-cent per-share loss, down from a profit of 6 cents a share a year ago. Revenue was seen as roughly flat, at $8.265 billion.
Results: Rite Aid reported break-even results on an adjusted basis, with revenue up 3.3% to $8.5 billion. Same-store sales slid 3%.
Stock: Shares climbed 6.4% to 3.97 on the stock market today after hitting a 3-1/2-year low on Monday. Walgreens Boots Alliance rose nearly 2%, moving above its 50-day line.
Fred's (FRED) climbed 4.6%, after naming new board members late Monday. CVS Health (CVS) rose 2.65%, due to CVS' pharmacy benefits manager side possibly benefiting from Express Scripts (ESRX) likely to lose Anthem (ANTM) as a key customer.
IBD'S TAKE: Deutsche Bank believes that Rite Aid's stock could dive more than 50% if Rite Aid's merger with Walgreens doesn't go through.
Walgreens originally agreed to pay $9 per share for Rite Aid in 2015 in a deal worth $9.4 billion at the time. It came amid a wave of health-industry moves to consolidate and keep expenses in check as the Affordable Care Act brought insurance to more people.
When the agreement was struck, Bloomberg noted that Walgreens would modernize Rite Aid's stores and gear them more toward beauty and wellness, while Walgreens would gain access to the drug-benefit management market for employers and insurers where CVS Health competes.
To pass antitrust muster, Walgreens planned to sell 865 Rite Aid stores to Fred's but that still wasn't enough to ease regulators' concerns that that tie-up could hurt competition.
So earlier this year, Walgreens slashed its takeover to $6.50-$7, with the new price dependent on how many stores Rite Aid had to divest, as the Federal Trade Commission reportedly considered blocking the deal.
The potential number of Rite Aid stores that could be sold has since been bumped up to as many as 1,200. But regulators' doubts have grown about Fred's ability to absorb that many stores.
Early this month, Walgreens CEO Stefano Pessina said he was "still optimistic that we will bring this deal to a successful conclusion. But there is no doubt that the process of getting clear for the transaction is taking longer than we expected."
Last week, Bloomberg, citing a report from the trade publication Capitol Forum, said that the Federal Trade Commission was considering suing to block Walgreens' attempt to buy the company.
An merger expiration extension suggests Walgreens will keep fighting to win over the FTC, perhaps after President Trump gets new commissioners to fill empty seats.
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