Merger mania continues to reshuffle healthcare assets

Likely Pfizer-Allergan friendly merger pairs with Walgreens-Rite Aid as concerns over concentration mount

The low interest-rate environment in the US and much of the rest of the industrialized world continues to allow major corporations to realign their assets with a view toward thriving in future healthcare markets. It’s hard to keep score on who’s buying what, but nevertheless, the mergers will continue, albeit with greater scrutiny from regulators.

At the end of October, Pfizer announced that it was working through the details of a friendly offer to acquire Allergan, with one of the advantages of the deal being a tax inversion that could lower Pfizer’s corporate tax rates; Allergan already took advantage of that when it moved its headquarters to Ireland. That came on the heels of Walgreens Alliance Boots, the No. 1 US pharmacy chain by store count, acquiring Rite Aid, the No. 3 chain, for $17.2 billion. And that was preceded by the dance that US insurers have been engaged in, with Aetna and Humana potentially pairing up, as well as Anthem and Cigna. Overall merger activity in healthcare was approaching $500 billion in 2015, according an accounting by the Thomson-Reuters organization.

Walgreens Alliance Boots operates 8,173 stores in the US (and a total of 13,100 worldwide); Rite Aid has 4,571, according to the latest financial statements. the latest press reports indicate that the merged entity could give up as many as 1,000 stores to address antitrust concerns.

Pfizer’s year has been active and tumultuous; the company was engaged in on-again, off-again talks with AstraZeneca, then subsequently acquired Hospira. The acquisition of Allergan, which currently represents the 2014 merger of generics maker Actavis with Allergan, and the subsequent sale of its generics assets to Teva in a $40.5-billion deal last summer, is being said to bring the day closer when Pfizer will spin out its non-branded assets. (The Allergan-Teva deal is yet to be consummated.) The generics situation is very dynamic: prior to the Allergan deal announcement, Teva had been preparing for a hostile takeover of Mylan. Mylan itself is engaged in an unfriendly acquisition of Perrigo; a series of legal actions are being contested by the two firms, but Mylan is going forward. A Pfizer spinout, potentially next year, would continue the dance.

Although there are numerous analyses of the US Federal Trade Commission and antitrust policy in recent weeks, there is no clear signal that FTC is tightening its oversight of healthcare mergers. However, a months-long review of a merger in another area—that of office-supply chains Staples and Office Depot—has been extended into early December, according to a Staples announcement..