Walgreens/Rite Aid Merger Scrapped

June 29, 2017

Article

After anti-trust woes, the acquisition is thrown out and Walgreens buys over 2,000 stores.

The much-anticipated acquisition of Rite Aid Corporation by Walgreens Boots Alliance, Inc. fell victim to antitrust concerns. After spending months undergoing antitrust scrutiny, the two companies have scrapped the deal and planned a smaller buyout.

Walgreens Boots Alliance (WBA) Executive Vice Chairman and CEO Stefano Pessina said in an investor call earlier today that “given the changes in the market during the longer-than-expected FTC review process, and the ongoing uncertainty about the potential outcome, we have decided … not to continue to pursue the acquisition of [Rite Aid].”

First announced in 2015, the previous deal would have joined the number two and number three chain pharmacies in the United States.

Under the new deal, WBA agreed to buy 2,186 Rite Aid stores. The stores are mainly located in the Northeast, Mid-Atlantic, and Southeastern regions of the United States. In addition to the stores, Walgreens will also buy three distribution centers-located in Connecticut, Pennsylvania, and South Carolina-and related inventory. The sale will cost Walgreens $5.175 billion in cash. Walgreens will also pay Rite Aid $325 million in termination fees.

Passina added in the investor call that, “This transaction, though smaller than the original, is true to our original strategic aim and, I believe, simpler to deliver both operationally and financially. Overall, I view this deal as being more attractive than the transaction it replaces, recognizing the adjustment and compromise we have had to make since the original deal was announced.” He also stressed that he believes this new deal will account for all of the regulatory requirements made during the original deal.

In addition to canceling the previously planned acquisition, Rite Aid is no longer selling a large portion of its stores to Fred’s Inc. This previous deal would have allowed Fred’s to purchase 865 stores. Fred's had said that it was willing to buy the 1,200 stores that the FTC had required Walgreens to shed in order for the merger to go through.

According to Walgreens, the new transaction is subject to the expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. In a press release, Walgreens said that upon the initial closing of the new transaction, Walgreens Boots Alliance will begin acquiring the stores and related assets on a phased basis over a period of approximately six months.

Walgreens said that it expects regulatory approval within six months. After the acquisition period, the stores will be converted to the Walgreens brand over time.

Rite Aid will still continue to operate EnvisionRx, its pharmacy benefit manager, RediClinic, and Health Dialog.

Rite Aid Chairman and CEO John Standley said in a press release that, "While we believe that pursuing the merger with WBA was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets," said. "The transaction offers clear solutions to assist us in addressing our pharmacy margin challenges and allows us to significantly reduce debt.”