Walgreens' Euro deal leaves Rite-Aid lonely

"Investors hoping that Rite Aid might be Walgreen's next target were disappointed" by this announcement "that Walgreen will purchase Alliance Boots," Europe's largest pharmacy chain, for $6.7 billion in cash and stock, writes bond analyst Kim Noland in a report for Gimme Credit LLC.

"This risky move likely rules out purchase of even part of the Rite Aid chain," adds Noland.

Why so risky? Because it will leave Walgreens deep in debt -- just like Rite Aid's ill-timed 2007 purchase of Brooks Eckerd, which forced years of store consolidations and closings from which Camp Hill, Pa.-based Rite Aid has only recently graduated to slow, steady growth, thanks partly to Walgreens' fight with pharma supplier Express Scripts, a dispute that is pushing some customers to Rite Aid.

Given Rite Aid's precarious stability, compared with Walgreens' mounting debt, Noland is recommending investors buy Rite Aid senior notes, from the 2017 series, at effective yields above 10% -- which ought to be enough to discourage any more mega-pharma-chain deals for awhile.