Thursday, June 29, 2017

Walgreens No Longer Merging With Rite Aid; Still Plans To Buy Half Of Rite Aid Stores For $5.2 Billion

It’s been nearly two years since Walgreens first agreed to buy competitor Rite Aid and its 4,600 or so stores for $9.4 billion to form the nation’s largest drugstore chain, only to see the value of that deal shrink amid antitrust concerns. Today, Walgreens announced that it’s scrapping that original plan to combine forces with Rite Aid but still plans to purchase about half of the smaller company’s retail locations.

More precisely, Walgreens Boots Alliance will spend $5.2 billion to acquire 2,186 Rite Aid stores, three distribution centers, and all the related inventory of those operations. Rite Aid will also receive $325 million from Walgreens in the form of a “termination fee” for pulling out the pending merger.

The combination of these two chains immediately raised concerns about over-consolidation in the industry and overlapping retail locations for existing Walgreens and Rite Aid stores. Initially, Walgreens attempted to allay those worries by saying that only around 500 stores would close as a result of the merger, later saying that 1,000 locations would need to be sold off to competitors in order to get regulatory approval of the deal.

In Dec. 2016, the merger partners reached a secondary deal with the Fred’s chain of drugstores. Fred’s agreed to purchase 865 Rite Aid locations for $950 million, but even this did not appear to satisfy regulators’ concerns about competition. Only a few weeks later Walgreens cut the value of the Rite Aid merger by $2 billion and said that 1,200 stores would need to be sold, and once again Fred’s appeared to be willing to buy those locations.

The deal would have more nearly tripled the current number of Fred’s stores from 601 to around 1,800, but still would have left the company in a far-distant third place behind Walgreens and CVS.

Now Fred’s will remain in fourth place behind the smaller Rite Aid, assuming the sale of the 2,186 locations is approved. However, Fred’s will be reimbursed $25 million for its wasted time on this matter.

“While the acquisition of additional stores was an opportunity for growth, we always viewed it as a potential outcome that would accelerate our transformation, not define it,” says Fred’s CEO Michael K. Bloom. “This is a disappointing outcome; however, the termination of the transaction has no impact on the Company’s transformation strategy or our ability to execute.”

The Federal Trade Commission, which had reportedly raised a number of concerns about the Walgreens and Rite Aid merger, reminded everyone this morning that it will still need to review and approve the sale of the thousands of Rite Aid stores.

“The Commission staff thoroughly investigated the potential impact that the proposed Walgreens/Rite Aid merger may have had on competition and evaluated a number of divestiture proposals put forward by the parties,” reads a statement from Acting FTC Chair Maureen Ohlhausen, noting that the companies have officially withdrawn their request for merger approval. “Walgreens and Rite Aid have publicly stated they have reached a new agreement relating to certain Rite Aid assets. The FTC will review any new transaction proposed by the parties under the statutes enforced by the Commission, as may be applicable.”


by Chris Morran via Consumerist

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