Walgreens to Purchase Over 2,100 Rite Aid Stores
Earlier today, Walgreens Boots Alliance announced its plans to cancel its $9.4 billion deal to merge with Rite Aid Stores, Inc. After days of speculation and rumor, this announcement impacts both companies’ future plans as well as others in the industry. Here’s a look at what happened and what it means for the everyday consumer.
Antitrust Concerns
The original deal to merge Walgreens and Rite Aid, currently the 2nd and 3rd largest pharmacy chains in the U.S., started nearly two years ago in October 2015. Rite Aid, which owns and operates some 4,600 stores, concentrated in the northeast, southeast, and mid-atlantic regions, was failing. Looking to reconcile debt and avoid bankruptcy, Walgreens offered to buy the company, allowing it to jump ahead of industry-leader CVS and become the nation’s largest pharmacy chain.
However, concerns over antitrust regulations plagued the deal from the start. Facing increased scrutiny from the FTC, Walgreens and Rite Aid attempted to divest some stores. This would reduce the total number of post-merger Walgreens locations to about 11,700 locations, still more than the 9,600 of CVS.
At this point in the deal, southern pharmacy chain Fred’s entered the picture. Fred’s offered to buy some 1,000 store fronts in an effort to increase its share in the market. They also had hopes to expand past their current boundaries into the mid-atlantic states.
Unfortunately, these efforts were simply not enough. With the FTC blocking several attempted mergers in the healthcare field, Walgreens decided to back out before the official ruling came next week.
What’s Happening Now
With three main dress store brand impacted by this merger (or non-merger), there is a lot going on in the industry today. Let’s take a look at the future for each of them:
Walgreens
While the full merger between Walgreens and Rite Aid failed, there is still a standing deal between the two. Walgreens has agreed to buy some 2,186 (approximately 48%) of Rite Aid’s stores for $5.175 billion. With many stores concentrated in the northeastern region, Walgreens is optimistic moving forward. This deal plays into their plans for expansion. Indeed, they will officially surpass CVS to become the nation’s leading chain with this move.
At this time, as long as the FTC approves the deal, Walgreens plan to take over stores in phases over the next six months.
Rite Aid
Right away, the stock market responded to the Walgreens expansion, with its shares rising even before the opening bells. By contrast, stocks for both Rite Aid and Fred’s fell dramatically, foreshadowing the uncertain future that both retail chains face.
Currently, Rite Aid has no firm plans moving forward, though they will continue to operate the remaining 52% of their stores. CEO John Stanley, appeared optimistic, stating that the new deal “offers clear solutions to assist us in addressing our pharmacy margin challenges and allows us to significantly reduce debt.” However, analysts are unsure how Rite Aid plans to proceed. Or if they plan to proceed at all.
Fred’s
For its part, Fred’s CEO, Michael K. Bloom, wrote off the loss, explaining to Supermarket News:
While the acquisition of additional stores was an opportunity for growth, we always viewed it as a potential outcome that would accelerate our transformation, not define it. This is a disappointing outcome; however, the termination of the transaction has no impact on the company’s transformation strategy or our ability to execute. We are as confident as ever that we have a strong team and the right strategy in place to drive long-term growth and profitability, and to enhance value for our shareholders.
However, exactly how and where Fred’s now plans to expand is still a mystery.
Mergers in a Dying Industry
It’s no secret that the retail industry as we know it has been dying. With more options available online, including prescription drugs, people just don’t go to the store like they used to. In addition, mergers between online and retail giants such as Walmart/Jet and Amazon/Whole Foods further complicate matters. For now, at least, there appears to be a solution to this 18-month-long drug store drama.
What do you think?