Dive Brief:

• Albertsons and Rite Aid canceled their planned $24 billion merger late Wednesday, according to a press release. Shareholders were set to vote on the acquisition today, but the deal was called off due to mounting opposition.
• Many Rite Aid shareholders felt the company was undervalued, and some investors like Highfields Capital Management came out publicly against the deal. Meanwhile, prominent advisory firms Institutional Shareholder Services and Glass-Lewis agreed, and noted that combining two highly leveraged companies competing in low-margin industries created significant risks for investors.
• In a statement, Albertsons said it disagreed with the advisory firms and shareholder concerns, and that it was unwilling to amend its acquisition offer announced in February. The company wrote it "believes that the strategic rationale of the Rite Aid combination was compelling, including the $375 million of cost synergies and $3.6 billion of identified revenue opportunities."

Dive Insight:

For Albertsons, this marks yet another failed attempt at becoming a publicly traded company. Under Cerberus Capital Management, which first became involved with Albertsons in 2006, the grocer has acquired food companies at a blistering pace. With the Rite Aid tie-up, it hoped to gain additional scale and momentum to withstand mounting competition from the likes of Amazon, Walmart and Kroger, among others.

Albertsons also looked to the acquisition to beef up its pharmacy services and expand the availability of its private label offerings. But combining two companies facing significant operational, financial and competitive struggles was, in hindsight, a stretch.

“A huge question mark always hung over how the combination of the two businesses would have boosted growth and created meaningful transformation,” Neil Saunders, managing director with GlobalData, wrote in an email sent to Food Dive. “The parties talked enthusiastically about evolving themselves into a food, health and wellness powerhouse but never spelled out what form this would take or how it would come about.”

Shareholders had their reservations. Some Albertsons investors didn’t want to take on a weak pharmacy retailer, while Rite Aid shareholders balked at getting immersed in the cutthroat grocery industry. Rite Aid shareholders also felt the deal, which would have given them a nearly 30% stake in the combined company, undervalued the pharmacy retailer. Albertsons, meanwhile, refused to raise its $24 billion offer after careful review.

The tie-up’s death knell seems to have come from influential advisory firms Institutional Shareholder Services (ISS) and Glass-Lewis, which both issued reports opposing the merger. While both saw the business rationale behind the move — ISS went so far as to call it “a step in the right direction” — they wrote that Albertsons had undervalued Rite Aid, and that the deal would expose shareholders to significant risk.

The firms also questioned the thoroughness of the companies in evaluating the deal and noted that Albertsons CEO Bob Miller and Rite Aid CEO John Standley have close professional ties, including time together serving on Rite Aid’s board.

So what’s next for Albertsons? The company may seek out another acquisition to up its scale and help it attack opportunities in e-commerce and elsewhere. However, it should focus more of its resources on updating its existing stores. The company has grown so fast over the past several years, it might be time to slow down and zero in on the customer experience.