The announcement came just hours before Rite Aid shareholders were due to vote on whether to accept Albertsons proposal to create a food and drugs retail powerhouse with $83 billion in annual sales.
Rite Aid Chairman and CEO John Standley said in a prepared statement that his company would continue to "build momentum" for big parts of its business like its renovated stores, expanded pharmacy services and its customer loyalty program.
Shares of the drugstore chain plunged after markets opened Thursday. The special meeting of Rite Aid shareholders to vote on the merger, scheduled for 8:30 a.m. ET on August 9, was canceled.
Albertsons said it disagreed with the view that the USA grocer was not offering sufficient merger consideration to the shareholders of Rite Aid, who were to get 30 percent of the combined company under the terms of the agreement.
The company also announced its board of directors is evaluating governance changes at the company.
Under the terms of the agreement, neither company will be responsible for payments to the other party. The company called the strategic rationale of the deal "compelling" and said it presented $375 million in cost synergies and $3.6 billion in revenue opportunities.
He said Rite Aid needs a large investment to help shift its store inventory toward more health and beauty products, like Walgreens and CVS have done, and away from low-margin items like cigarettes that also are prime shoplifting targets.
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Two prominent shareholder advisory firms - Glass Lewis & Co. and Institutional Shareholder Services - also recommended no votes.
The collapse of the deal is the second time a deal has failed for Rite Aid, after its proposed merger with Walgreens Boots Alliance Inc. past year fell apart. "We are confident that our 275,000 dedicated employees will continue to execute on our business plan to enhance our customers' experiences and lead the grocery industry with new innovations".
But it will face significant challenges continuing as a stand-alone company.
Earlier this week, Rite Aid said it was chopping its fiscal 2019 forecast because generic drug pricing wasn't shaping up how it expected in April, when it first laid out expectations.
Walgreens wanted to buy all of Rite Aid in 2015, but federal regulators nixed that plan on antitrust grounds. Last September, Walgreens Boots Alliance Inc. announced a slimmer agreement to buy almost 2,000 Rite Aid locations and some distribution centers for about $4.38 billion.
Under the merger pact unveiled February 20, Rite Aid shareholders - in exchange for every 10 shares of Rite Aid common stock - were offered to elect to receive one share of Albertsons Cos. common stock plus about $1.83 in cash or 1.079 shares of Albertsons Cos. stock.
Rite Aid said it has canceled a special shareholders meeting on the deal that was due to take place Thursday.
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