Walgreens’ Wants Half of Rite Aid Stores

The $5.1 billion deal may be an effort to duck antitrust problems

One huge merger just came undone, but not completely. Walgreens and Rite Aid, both big presences in the pharmacy business, stepped away from their $9.4 billion merger agreement, the Wall Street Journal reports. But Walgreens did agree to buy half of Rite Aid’s stores for $5.1 billion—in cash.

Apparently, the action was a case of backing off before the government said no to the original planned merger on the grounds that it violated antitrust laws. “Among the antitrust concerns was that the resulting drugstore giant—which would have challenged CVS Health Corp. —would have been able to bully pharmacy-benefit managers steering corporate and government drug plans,” the WSJ reports.

Walgreens will have to pay Rite Aid a $325 million termination fee because the original deal fell through. When the new arrangement becomes final, Walgreens will begin buying the Rite Aid stores along with three distribution centers over a six-month period. Walgreens Chief Executive Stefano Pessina tells the WSJ that the new deal “addresses competitive concerns previously raised with respect to the prior transaction and will streamline and simplify the transition for customers, team members and other stakeholders.”

Meanwhile, Rite Aid’s CEO John Standley says that the deal offers “clear solutions to assist us in addressing our pharmacy margin challenges and allows us to significantly reduce debt, resulting in a strong balance sheet and improved financial flexibility moving forward.”

Under the new deal, Walgreens will buy about 48% of the 4,523 stores that Rite Aid currently operates. The stores will eventually be converted into Walgreens. It hopes to see $400 million in cost savings within three to four years of closing the new deal.

Source: Wall Street Journal; June 29, 2017.