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Walgreens scraps $17bn merger with Rite Aid

RBR Staff Writer Published 30 June 2017

Walgreens Boots Alliance (WBA) has terminated its $17.2bn acquisition of 100% of retail pharmacy chain Rite Aid after failing to get an approval for the merger transaction from the US Federal Trade Commission (FTC).

Instead, the American pharmacy store chain has entered into a new asset purchase agreement to acquire 2,186 Rite Aid stores, their associated distribution assets and inventory in an all-cash deal of $5.175bn.

Most of the stores to be divested under the new agreement are located in the northeast, mid-Atlantic and southeastern regions.

Walgreens Boots Alliance executive vice chairman and CEO Stefano Pessina said: “This new transaction extends our growth strategy and offers additional operational and financial benefits.

“It will allow us to expand and optimize our retail pharmacy network in key markets in the U.S., including the Northeast, and provide customers and patients with greater access to convenient, affordable care.

“We believe this new transaction 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.”

Under the new terms, Rite Aid for a period of 10 years has the option to purchase generic drugs sourced through a Walgreens affiliate at cost, considerably equivalent to Walgreens.

The new transaction between the parties is likely to be closed inside six months and has been approved by the board of directors on either side and would not need a shareholder vote. It would need an antitrust clearance besides meeting other customary closing conditions.

Rite Aid chairman and CEO John Standley said: “While we believe that pursuing the merger with WBA was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets.

“The transaction 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.”

Upon completion of the divestiture transaction, Rite Aid will continue to operate its pharmacy benefit manager EnvisionRx, Health Dialog and RediClinic.

The previously announced transaction in October 2015 was scrapped on a mutual basis with Walgreens agreeing to pay a termination fee of $325m in cash to Rite Aid.

Another transaction made in conjunction with the $17.2bn merger deal has been terminated as well.

The deal, which was announced in December 2016, had Walgreens and Rite Aid agreeing to sell 865 stores to Fred’s Pharmacy for $950m in a bid to address competition concerns raised by the FTC.


Image: A Rite Aid Pharmacy (formerly Eckerd) at 200 North Lasalle Street in Durham, North Carolina. Photo: courtesy of Ildar Sagdejev (Specious)/Wikipedia.org.