Walgreens Again Trims Deal for Rite Aid But Finally Gains Approval -- 2nd Update

09/19/17 11:58 AM EDT
By Brent Kendall and Austen Hufford 

Walgreens Boots Alliance Inc. received regulatory approval for its deal to buy nearly 2,000 stores from Rite Aid Corp., but only after the number of stores to be purchased was again trimmed to allay antitrust concerns.

Walgreens will now buy 1,932 Rite Aid stores for $4.38 billion, a far cry from the original $9.4 billion deal for about 4,600 stores, struck in 2015. The Federal Trade Commission spent roughly 18 months investigating the companies' broader plan to merge and harbored an array of concerns that the deal would unacceptably harm competition.

In the face of continued FTC objections, the two companies scrapped their merger plans in June, agreeing instead that Walgreens would seek to buy about 2,200 Rite Aid stores.

After further discussions with the FTC, the companies dropped about another 250 stores from the transaction, Rite Aid said Tuesday.

Rite Aid will continue as a stand-alone company, operating about 2,600 stores, six distribution centers and its pharmacy-benefit manager, EnvisionRx.

Walgreens Chief Executive Stefano Pessina said the deal "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."

The deal has been approved by the boards of both companies and doesn't require a shareholder vote. Store transfers will start in October, with the goal of completing the transition in the spring of next year.

The FTC has been reviewing the drugstore chains' proposed transaction short-handed. There are only two current commissioners on the five-member commission, one Republican and one Democrat. Both commissioners had objections to the original merger proposal, but their views diverged on the scaled-back transaction.

Acting Chairwoman Maureen Ohlhausen, a Republican, said Tuesday the stores now being sold are located in areas where the two pharmacy chains aren't significant competitors "and in some places, different types of retail pharmacy providers, such as mass merchants or supermarkets like Kroger and Wal-Mart, are significant competitors."

Ms. Ohlhausen said she believed Rite Aid "will remain a robust competitor in the areas where its presence matters in the formation of retail pharmacy networks, and it will retain most or all of its stores in those areas."

The Democratic commissioner, Terrell McSweeny, said she objected to allowing the current deal without studying the effects of the revised transaction in more detail. She said the store sales would eliminate Rite Aid's geographic footprint in certain regions, leaving just Walgreens and CVS Health Corp.

Ms. McSweeny said the current deal was better than the previous proposals and eliminated "many of the most obvious harms to competition." But she said she was concerned the transaction "will leave some communities with fewer pharmacy options and could lead to higher drug prices and a deterioration in non-price aspects of competition."

Write to Brent Kendall at brent.kendall@wsj.com and Austen Hufford at austen.hufford@wsj.com

 

(END) Dow Jones Newswires

September 19, 2017 11:58 ET (15:58 GMT)

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