Walgreens-Rite Aid merger falls away, replaced by sale of some stores

Pharmaceutical CommercePharmaceutical Commerce - July/August 2017

$325-million cancellation fee to be paid to Rite Aid

The drawn-out bid by Walgreens Boots Alliance Inc. to acquire Rite Aid, first announced in October 2015, has ended. In its place, WBA is purchasing 2,186 stores and three distribution centers, for $5.175 billion in cash. And because the acquisition bid has failed, WBA owes Rite Aid a $325-million termination fee.

The cancelled acquisition also ends the plan for Fred’s Pharmacy, a regional chain which was to have acquired 865 Rite Aid stores excluded from the acquisition out of antitrust concerns. According to press reports, Fred’s is to receive a $25-million termination fee. Its stock, as well as Rite Aid’s, initially fell on news of the cancelled deal.

WBA’s original bid was to acquire the entire company and its then-4,175 stores for $9.4 billion; that was revised to acquiring the company for $7.4 billion and divesting 865 stores to Fred's. Negotiations with FTC dragged on and were to have concluded in a definitive decision (by WBA’s request) by July 7. WBA’s pre-emptive action reopens (or renews?) the antitrust negotiation: WBA offers that it expects this deal to close by the end of this year, and then to take another six months or so to integrate the stores.

Initial financial analyst observations were over what will happen with what is left of Rite Aid: some 2,400 stores, presumably of lesser quality than the ones to be acquired by WBA. Rite Aid also wins the option, exercisable through May 2019, of becoming a member of WBA’s group purchasing organization, Walgreens Boots Alliance Development GmbH. If the new deal goes as planned, WBA will have some 10,300 stores, still nosing out ahead of CVS Health’s 9,600 to be the No. 1 chain by number of locations. WBA itself is a multinational, with substantial operations in Europe and other parts of the world, and with a tight drug-supply arrangement with AmerisourceBergen.

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