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Walgreens Cuts Rite Aid Price As FTC Seeks More Divestments, Fred’s Deal May Be In Jeopardy

Walgreens Boots Alliance and Rite Aid have agreed to reduce the price for each share of Rite Aid common stock to be paid by Walgreens to a maximum of $7.00 per share and a minimum of $6.50 per share, or $7.37 billion to $6.84 billion, down from the $9 per share or $9.4 billion under their previous merger plan announced in 2015.

Additionally, the Deerfield, IL drug chain will be required to divest up to 1,200 Rite Aid stores and certain additional related assets to obtain regulatory approval. Both parties have also agreed to extend their merger process date to July 31 to allow additional time to obtain regulatory approval, a sixth month extension from their previous January 27 deadline.

With more than 300 stores added to the newly expanded divestiture list, several sources have questioned whether original Walgreens divestment partner Fred’s Inc., which agreed to purchase 865 overlapping units from Walgreens, might be out of the running.

According to our own financial sources and to semi-paraphrase the great Curtis Mayfield: “Freddy’s (Almost) Dead…That’s What I Said.” That’s reportedly because of the FTC’s concerns that the Memphis druggist might not be able support an acquisition of that size, especially when the agency got burned by allowing Haggen to buy 146 stores from Albertsons in 2015. And according to the New York Post, private equity firm Cerberus Capital, which controls both Albertsons and Supervalu, has emerged as a possible white knight to fill the void and acquire the Walgreens “overflow” should Fred’s fail in its bid. According to the Manhattan- based tabloid, which is owned by Rupert Murdoch’s News Corp. organization, Cerberus made its original bid to acquire the divested units through its Albertson unit at an auction in December. While the newspaper claims Cerberus lost out to Fred’s, it also claimed that their bid was actually higher than the $950 million that Fred’s paid for those rights. The story also notes that the nation’s largest drug chain accepted the Fred’s offer because Walgreens was concerned about potential FTC approval of a PE buyer. Cerberus denied that it ever contacted the FTC about the transaction or the bidding process.

If the merger falls through, Walgreens would be required to pay Rite Aid a termination fee of $325 million, which would double to $650 million “in certain circumstances,” according to a previous filing.