Walgreens cancels deal to buy Rite Aid
Walgreens Boots Alliance has announced a new Rite Aid deal, ending its nearly two-year quest to acquire the Camp Hill, Pa.-based drug store chain. The divestiture agreement with Fred's Pharmacy, whereby Fred's would buy 865 Rite Aid stores, is also terminated.
The move comes after Walgreens has struggled to win approval of the deal from the Federal Trade Commission. Under the new agreement, Walgreens will acquire 2,186 of Rite Aid's 4,523 stores for $5.175 billion in cash. Also, Rite Aid will receive a $325 million termination fee.
"For Walgreens, this is potentially a good deal, gaining them expanded prime store presence, but without a lot of the overheads and challenges that come with taking over an entire company,” commented Maulik Bhagat, a managing director in the healthcare practice of AArete, a global consultancy. "It will allow the company to drive significant synergies through their operations, supply chain, etc. And it should allow Rite Aid to focus internally and look at ways to get back to profitability."
The 2,186 stores included in the new agreement are primarily located in the Northeast, Mid-Atlantic and Southeastern regions of the United States. Three distribution centers are included in the agreement, with locations in Dayville, Connecticut, Philadelphia and Spartanburg, South Carolina. Under the terms of the agreement, Rite Aid will provide certain transition services to Walgreens for up to three years after the closing of the transaction.
"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," said John Standley, chairman and CEO of Rite Aid. "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."
The initial closing of the new transaction is expected to occur within the next six months. Upon closing, Walgreens will begin acquiring the Rite Aid stores and related assets on a phased basis over roughly six months, and intends to convert acquired stores to the Walgreens brand over time.
“This new transaction extends our growth strategy and offers additional operational and financial benefits,” Stefano Pessina, executive vice chairman and CEO of Walgreens Boots Alliance, said. “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."