The Walgreens Boots Alliance (Walgreens) acquisition of many of Rite Aid Corp’s stores finally gained regulatory approval on September 20. The renegotiated deal comes after the Federal Trade Commission (FTC) reportedly would only authorize the deal if Walgreens reduced the number of stores it would gain in the purchase. The new deal finds Walgreens acquiring 1,932 stores, three distribution centers and related inventory from Rite Aid for an all-cash purchase price of $4.375 billion on a cash-free, debt-free basis.
That deal was restructured from a July 2017 agreement in which Walgreens would have purchased 2,186 units from the Camp Hill, PA-based drug chain. However, multiple sources reported that the FTC pushed back against that revised deal and sought for Walgreens to further reduce the number of Rite Aid stores it would.
Originally, Walgreens had proposed a total takeover of Rite Aid. In October 2015, the Deerfield, IL-based chain announced it had entered a definitive agreement to acquire all outstanding shares of Rite Aid for $9.4 billion. The proposed acquisition would have made Walgreens the largest drug chain in the U.S., with 12,800 locations. However, despite Walgreens CEO Stefano Pessina’s assurances that the company had thoroughly analyzed potential anti-trust issues and expected no more than 500 store closures would be necessary, along with two extensions of the deadline for FTC approval, it was not gained, and the original plan was scrapped.
An amended plan was put forth earlier this year to accommodate more store divestitures than had originally been planned, and the price of the deal was also trimmed at that time to $6.8 billion. The amended plan included a separate agreement to reportedly sell approximately 865 Rite Aid units to Fred’s Inc., a Memphis-based regional drug and discount chain that currently operates about 600 stores in the South and Midwest.
However, that agreement did not secure FTC approval either and was scrapped, leading to the current arrangement.
The 1,932 store gain by Walgreens will certainly change the market landscape, particularly in the Northeast where the Chicago area firm will gain an additional 1,038 drug stores.
On a state-by-state basis, here’s the breakout of Walgreens’ new stores, along with the number of Rite Aid stores still operating in those Northeast states: Connecticut – 43 new Walgreens (34 remaining Rite Aids); Delaware – no new Walgreens (42 remaining Rite Aids); Maine – 0 (79); Maryland – 96 (43); Massachusetts -134 (10); New Hampshire – 6 (62); New Jersey – 118 (133); New York – 273 (323); Pennsylvania – 2 (534); Rhode Island – 43 (0); Vermont – 31 (6); West Virginia -103 (0); and Washington, DC -7 (0).
Rite Aid also has the option to purchase generic drugs that are sourced through an affiliate of WBA at a cost substantially equivalent to Walgreens for a period of 10 years. Under the amended and restated agreement, Rite Aid will retain approximately 250 additional stores as compared to the prior agreement announced between Rite Aid and WBA in June 2017, resulting in a reduction in the transaction sale price. The decision to retain these stores follows discussions between Rite Aid and Walgreens, as well as the FTC.
The final deal will result in Walgreens becoming the nation’s largest drug chain with more than 10,000 locations, followed by CVS with about 9,500 stores nationally. Rite Aid, with approximately 4,500 stores, falls to a distant third.