This post was just published on ZYX Buy Change Alert.
RAD is long from $4.95. As of this writing it is trading at $8.18. RAD has a buyout offer from WBA for $9 cash. The stock is trading at a substantial discount to the offer because of the concern that the government will not approve the buyout.
WBA has provided an update. WBA is in active negotiations with FTC. WBA thinks that the transaction can be approved with divesture of about 500 stores to another strong player.
Previously, WBA has stated that it would be open to divesting up to 1000 stores to gain approval.
If WBA’s increased confidence is real, then there is a lucrative opportunity to buy RAD right here. However in our analysis, there is no way to tell if this is simply posturing or the increased confidence real.
In the big picture, if the buyout is approved, in the U. S. drug store business there will be a duopoly between WBA and CVS. Hence the concern about the merger not being approved is legitimate.
Speculation is mounting that KR might be the buyer of the 500 divested stores. KR is down today on earnings. If KR buys the stores it is likely a positive for KR.
KR has pulled back substantially from its 52 week high and is on our radar to buy but it does not meet our criteria at this time. The reason is increasing food deflation especially in organic category as indicted in conference calls by SFM and WFM.
What To Do Now
Those in the stock may continue to hold.
Those not in the stock and are conservative may consider staying away from the stock at this time.
Those not in the stock and are aggressive may consider accumulating up to 20% of the full core position size on any pull back under $7.92 with the intention of adding more if the merger is not approved and the stock falls.
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