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Rite Aid shareholders this morning approved a $9-per-share takeover offer from Walgreens. The move marks the end of an era for the Pennsylvania-born pharmacy chain.
(File)
NEW YORK -Rite Aid shareholders this morning approved a $9-per-share takeover offer from Walgreens. The move marks the end of an era for Rite Aid, a Pennsylvania-grown, East Pennsboro Township-based company that grew into the third-largest pharmacy company in the nation, only to be bedeviled by corporate fraud, various management issues and deep debts born of its acquisition binges.
Here is the 50-plus-year saga of the rise and fall of Rite Aid:
Humble Beginnings
Began in 1962 with a single store in Scranton, Pa., called the Thrift D Discount Center, Rite Aid was the brainchild of founder Alex Grass, a Scranton-born lawyer who entered the business world in the early 1950s after marrying into Harrisburg's Lehrman family.
Healthy Growth
By 1972, after rapid expansion and a public stock offering, Alex Grass's "little drugstore" had become 267 Rite Aid locations in 10 states. Here, a vintage store in Albany, New York.
Drug Store Dominance
By 1995, Rite Aid was the nation's No. 1 drugstore chain in store numbers and the No. 2 chain in sales. The father, Alex Grass, believed he had built a firm foundation for his son and soon-to-be-CEO Martin Grass. But Rite Aid would be rocked to its core by this generational leadership change. Pictured: A healthy Rite Aid was bagging big sales.
Grass isn't Greener
Determined to out-do his dad by taking Rite Aid to an untold "higher level," Martin Grass would very nearly wreck Rite Aid, instead, bringing his own career, along with his family's reputation, down in the process. Rite Aid was hamstrung by disastrous deals, high debt, and ultimately illegal accounting practices designed to fictionalize Rite Aid's profits.
Scandal, Stock Crash and Federal Prison
The Rite Aid accounting scandal and its related conspiracies would send Martin Grass to federal prison for seven years. The business fallout would send company stock on a tailspin, from the high-flying $50-range to a low of less than $2 per share in the years afterward. In the process, Rite Aid investors, including many in the midstate, lost millions.
A Founder Falls
In 2009, Alex Grass, 82, lay dying of lung cancer. Meanwhile, his disgraced son was winding down a seven-year federal prison term, imposed in 2003 for obstruction and fraud convictions related to Rite Aid's prodigious accounting irregularities. Pictured: Alex Grass's 2009 funeral.
Fitting Epitaph
When Alex Grass died on Aug. 27, 2009, he was lionized as Rite Aid's founder and community philanthropist. By then his community service and generosity was legendary. High-profile causes included The Whitaker Center for Science and the Arts and The Alex & Louise Grass United Jewish Community Campus, named after Alex and wife, among others.
Lamentable Legacy
Meanwhile, Martin Grass left a reelingRite Aid and a tanking stock that would cause the nest eggs of many midstate investors in the company to simply vanish into thin air. Martin Grass was paroled in December 2009. But those who had invested in Rite Aid would never recover their losses, as the stock price would never see double digits again. Here, the company's sinking fortunes are symbolized by a shuttered, fenced-in store with a large sinkhole in its parking lot.
New Management, Same Mistakes
In the 2000s, the company's corporate leadership largely continued down the same path of high-debt deals to grow Rite Aid, even while its existing stores were poorly run. This had the effect of ceding an untold number of customers and sales to the competition, according to critics of the company. Pictured, former Rite Aid CEO Mary Sammons.
A New Low
In a single day in early 2009, Rite Aid plunged from 50 cents a share, down to 30 cents a share in less than one hour. Eventually, the stock bottomed at a palm-sweating 25 cents a share as Rite Aid appeared to flirt with bankruptcy. Pictured: Another sudden Rite Aid stock plunge likely caused some investors to lose their hats, if not their heads.
'Lipstick on a Pig'
More recently, Rite Aid seemed to stabilize a bit, yet it was never able to adequately pay down its debt and get its credit out of 'junk' status. Its high interest costs continued to constrain profits, and any bad news was cause for Wall Street to again punish the stock. "(CEO) John Standley has done a bang-up job putting lipstick on a pig, financially. I credit him for keeping it out of bankruptcy," one activist investor says. Pictured left to right are Congressman Lou Barletta; Rite Aid chairman and CEO, John Standley; Foundation for the Central Dauphin Schools program coordinator, Amy Snyder and Rite Aid president, COO and president of the Rite Aid Foundation, Ken Martindale.
Enter Walgreens
In late October of 2015, Walgreens announced it will pay $9 for each share of Rite Aid Corp. That's a 48 percent premium to Rite Aid's recent closing of $6.08 before the takeover announcement. The deal is worth a total of $17.2 billion, when debt is included. Many analysts feel the takeover was the best Rite Aid investors could have hoped for, given the company's credit and operational problems.
What of Rite Aid's Headquarters?
Slowly, but surely, the home-grown company -- along with its East Pennsboro Twp. corporate headquarters and its many white-collar jobs -- may be systematically dismantled and swallowed by the bigger pharmaceutical-selling fish, Walgreens, experts say. Walgreens will want to consolidate its national marketing behind a single name and brand - its own. And it will look to pay for the expensive takeover by consolidating Rite Aid operations and culling jobs.
RIP, Rite Aid
At long last, Rite Aid's run of high-drama - from its humble beginnings to debt-fueled growth to fabricated, ultimately illegal, accounting - may finally be coming to close, ending a unique central Pa. saga of early perseverance and promise and latter mistakes, malfeasance and deceit from which Rite Aid could never seem to recover.
READ MORE on the Rite Aid-Walgreens sale:
- Rite Aid shareholders approve sale to Walgreens
- Walgreens is getting Rite Aid 'for a song,' some investors say
- Rite Aid's merger with Walgreens could still be derailed by this big issue
- Here's how much Rite Aid execs stand to make from Walgreens takeover
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