Regulation

Walgreens Scraps Rite Aid Merger

Under a scaled-down deal, Walgreens would buy roughly half of Rite Aid’s stores.
William SprouseJune 29, 2017
Walgreens Scraps Rite Aid Merger

The proposed merger between Walgreens Boots Alliance and Rite Aid has been scaled back after the companies announced they were no longer going through with the transaction. Under the terms of a new deal, Walgreens would buy 2,186 Rite Aid stores for $5.18 billion. The sale would leave Rite Aid with 2,350 stores, essentially cutting it in half, according to a report from CNN.

The original $9.4 billion merger of the drug-store giants faced scrutiny from regulators from the beginning. The proposal was initially announced in October 2015 before being revised in December 2016, then scaled back in January 2017. The Federal Trade Commission had been expected to rule against the deal this week.

A spokesperson for Walgreens declined to comment on whether the expected rejection by the FTC killed the deal. But the spokesperson did say the company was confident the store sales now being proposed would be approved by regulators. The FTC said it would be reviewing the new deal.

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Walgreens on Thursday also ended a related deal to sell as many as 1,200 Rite Aid stores to Fred’s.

In a statement, Fred’s CEO Michael Bloom called that move “a disappointing outcome.”

Walgreens said it would pay Rite Aid a $325 million termination fee but it expected to realize synergies from the new transaction in excess of $400 million. It said the new deal would be “modestly accretive.”

“This new transaction extends our growth strategy and offers additional operational and financial benefits,” executive vice chairman and CEO of Walgreens Boots Alliance, Stefano Pessina, 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.”

Walgreens said it expects the new transaction to close within six months.