Strategy

Walgreens to Pay $2 Billion Less for Rite Aid

The amended terms of the megamerger reflect the companies' efforts to obtain regulatory approval.
Matthew HellerJanuary 30, 2017
Walgreens to Pay $2 Billion Less for Rite Aid

Walgreens Boost Alliance and Rite Aid have amended their megamerger agreement, with Walgreens paying up to $2.50 per share less for its rival and divesting up to 200 more Rite Aid stores than originally anticipated to obtain regulatory approval.

The companies said Monday they had revised the price of the deal to $6.50 to $7.00 per share from Walgreens’ original $9-per-share offer.

The deal, previously valued at $17.2 billion, including debt, is now valued at between $14 billion and $14.6 billion, according to a Walgreens spokesman.

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The exact price will be determined based on the number of required store divestitures, with the price set at $7.00 per share if 1,000 Rite Aid stores or fewer are required for divestiture and at $6.50 per share if 1,200 stores are required for divestiture.

If 1,200 stores are divested, that would represent an increase of up to 200 stores over the original agreement. Walgreens had struck a deal in December to sell 865 stores to Fred’s Inc. for $950 million but U.S. antitrust regulators were reportedly concerned that the plan did not go far enough to preserve competition in the drugstore industry.

Walgreens and Rite Aid also agreed to extend the deadline for closing the merger from Jan. 27 to July 31. “The one remaining uncertainty is who buys the incremental boxes as it is not clear to us that Fred has the financing capacity to do so,” Evercore ISI analyst Ross Muken said in a note.

In trading Monday, Rite Aid shares fell 17.1% to $5.74 on Monday, while Walgreens shares declined slightly to $81.48.

The combined Walgreens-Rite Aid would be America’s largest drug store king, surpassing CVS.  “I think Walgreens is highly motivated to get the deal done, so I think they’re going to do what they can to achieve that goal this year,” Joseph Agnese, a senior equity analyst with CFRA Research, told the Chicago Tribune.

Walgreens CEO Stefano Pessina said last week that the company was pushing to close the deal and was actively engaged in talks with the Federal Trade Commission.