Walgreens gets regulatory OK to buy Rite Aid stores

Walgreens Boots Alliance secured regulatory approval for a deal to buy stores from Rite Aid Corp. after a reduction in the number of stores and price. The deal will still enable Walgreens to dramatically increase its store footprint, giving it a total of about 10,000 U.S. locations.



The drug store chain announced Tuesday that it has secured regulatory clearance for a revised deal under which it will buy 1,932 stores, three distribution centers and related inventory from Rite Aid for $4.375 billion (and other consideration). The original proposal, announced in June, had included 2,186 stores and related assets for $5.175 billion.



“Combining Walgreens retail pharmacy network with a strong portfolio of Rite Aid locations is expected to help us achieve enhanced, sustainable growth while enabling us to broaden our reach and provide greater access to convenient, affordable care in more local neighborhoods across the United States," stated Stefano Pessina, executive vice chairman and CEO, Walgreens Boots Alliance.



The stores that Walgreens is purchasing from Rite Aid are located primarily in the Northeast and Southern U.S. After the acquisition is completed, they will be converted to the Walgreens banners in phases.



The three distribution centers being acquired are located in Dayville, Conn., Philadelphia, and Spartanburg, S.C. The transition of the centers to Walgreens will not begin for at least 12 months.



Along with the cash transaction, the deal also includes the assumption by Walgreens of the related real estate leases and the grant of the option to Rite Aid, exercisable through May 2019, to become a member of Walgreens Boots Alliance’s group purchasing organization, Walgreens Boots Alliance Development. Walgreens will also assume certain limited store-related liabilities as part of the new transaction.



Rite Aid expects to use a substantial majority of the net proceeds from the transaction to repay existing indebtedness which will improve the company's leverage levels. It also expects that the gain it will record on the sale of the assets will be largely offset by its net operating loss carryforwards, resulting in a minimal cash tax payment on this transaction.



Immediately following the completion of the transaction, Rite Aid will continue to operate approximately 2,600 stores and six distribution centers as well as EnvisionRx, its pharmacy benefit manager, RediClinic and Health Dialog.



"With a compelling and more profitable store footprint in key markets, enhanced purchasing capabilities and a stronger balance sheet and improved financial flexibility, we are well positioned to implement our plans to deliver improved results," stated John Standley, chairman and CEO, Rite Aid. "We are committed to supporting a smooth transition as we remain focused on delivering a great customer experience, improving our business and creating value for all of our stakeholders."



The transaction has been approved by the boards of directors of both companies and is still subject to other customary closing conditions. Store purchases are expected to begin in October, with completion anticipated in spring 2018.