Rite?Aid?Calls At?Record As?
By Michelle F. Davis
(Bloomberg) — Options traders are speculating Rite Aid
Corp. is a likely takeover candidate as Walgreens continues a
hunt for deals.
Investors are betting a 16 percent rally in Rite Aid this
year will continue after they pushed call volume up to a record
on March 18. Open interest in calls has increased 27 percent
since, with traders owning about 3.9 bullish contracts for every
bearish one, the highest ratio of calls to puts since July 2013.
Takeover speculation was revived last month after
billionaire Stefano Pessina, who took over in January as interim
chief executive at Walgreens after it acquired Alliance Boots,
said he envisions doing his next big deal in the U.S. Investors
see Rite Aid as a possible target, according to Peter Drippe of
Visium Asset Management LP.
Walgreens Boots Alliance Inc. has ?the need and capacity
to do another transaction,? Drippe, a New York-based manager
who helps run an event-driven fund at Visium, said by telephone
March 25. Visium oversees about $7 billion including Rite Aid
shares. ?People think Rite Aid would be a good fit because they
could take a lot of costs out of the business.?
Shares of Rite Aid rose 1.8 percent on March 18, when a
block of more than 81,300 calls for an increase in Rite Aid to
$9 by April 17 changed hands. Almost 253,000 bullish options
traded that day, about six times more than the previous session.
On March 19, a 10,000 block of $9 calls changed hands. Those new
positions helped send the number of bullish contracts
outstanding to about 552,000 as of March 30.
?Rumor Mill?
?The rumor mill is churning and then you had somebody come
in and buy these calls,? Jim Smith, an options strategist at
Purchase, New York-based OTR Global Trading LLC, said by
telephone March 24. ?It?s a cheap shot — a very low cost way
to bet on a deal.?
Walgreens spokesman Michael Polzin declined to comment
March 26 on the trading and deal speculation. Ashley Flower, a
spokeswoman for Rite Aid, declined to comment.
Walgreen Co.?s takeover of Alliance Boots GmbH closed Dec.
31, and the company is scheduled to report earnings this month.
Rite Aid shares are up 15 percent since Pessina, 73, said
at a Retail Week Live Conference March 12 that Walgreens? next
big deal will probably be in the U.S.
?It is such a big market. It is a fascinating market,?
Pessina said at the conference, according to Reuters. Pessina
had been heading Bern, Switzerland-based Alliance Boots and is
running Walgreens Boots until it finds a permanent CEO. ?It is
similar to what we had in Europe 20 years ago because the
government intervention changes all the rules.?
Drug Discounts
Rite Aid last month sold $1.8 billion of bonds to fund its
purchase of pharmacy-benefits manager Envision Pharmaceutical
Services Inc., leaving Walgreens Boots as the only major U.S.
retail pharmacy chain without such a benefit business. Benefit
managers help clients extract discounts from drug companies for
expensive medicine like Gilead Sciences Inc.?s $1,000-a-day
hepatitis treatment Sovaldi.
Rite Aid?s recent remodels, changes in merchandising and
limited stand-alone growth potential make it ?ripe for a
buyout,? Jim Sanderson, and analyst at Detwiler Fenton & Co,
wrote in a note March 24.
Still, a Walgreen-Rite Aid deal may not happen. Walgreens
Boots also has acquisitions outside the U.S. on its radar
screen, Friedman Billings Ramsey & Co. analyst Steven Halper
said in a Bloomberg First Word interview March 18, noting that
the company?s management thinks ?very global.?
Camp Hill, Pennsylvania-based Rite Aid moved up its first
quarter earnings by one day to April 8 so as not to report on
the same day as Walgreens Boots, which reports April 9. The
March 18 trade call trade was significant because of its size
and proximity to the company?s earnings date.
?People thought there might be an announcement out of
Walgreens going into their investor day about this,? Drippe
said. ?Whoever speculated on it, given what they were buying,
they clearly were hoping there?s going to be a deal. Obviously
this is completely unconfirmed.?