Walgreens Boots Alliance has agreed to acquire rival Rite Aid for $9.4 billion in a move to boost its U.S. footprint and give it greater leverage to negotiate drug prices with pharmaceutical companies.
Walgreens will pay $9 a share in cash for Rite Aid, offering a 48% premium to the closing price Monday. The stock closed at $8.06 on Wednesday.
The deal combines two of the three largest drug store owners in the U.S., strengthening Walgreens in its battle for supremacy with market leader CVS Health. Rite Aid, with 4,600 stores, accounts for about 6% of U.S. retail pharmacy sales, according to Morningstar, behind Walgreens with 16% and CVS with 24%.
“Our complementary retail pharmacy footprints in the U.S. will create an even better network, with more health and wellness solutions available in stores and online,” Walgreens chief executive Stefano Pessina said in a news release.
As The Wall Street Journal reports, drug makers, hospital chains, health insurers and others have already struck some $427 billion of merger deals in the U.S. this year. The Affordable Care Act has spurred healthcare companies to seek more leverage with their suppliers and cut costs.
“By combining their drugstore networks, which together include roughly 13,000 U.S. stores, Walgreens and Rite Aid, which have both been pinched by drug-price inflation, could reap considerable savings,” the Journal said.
Walgreens Boots Alliance was forged through the merger of Walgreen Co. and the European chain Alliance Boots. Even before that deal, Walgreens had acquired Duane Reade, USA Drugs and Kerr Drug to grow to more than 8,200 stores and revenue of $76 billion last year.
CVS, with more than 7,800 stores, had sales of $139.4 billion in 2014.
“The pharmacy consolidation endgame has begun,” Adam J. Fein, president of Pembroke Consulting, told The New York Times, noting that “Rite Aid was one of the last remaining pharmacy assets available for purchase.”
Antitrust lawyer David Balto told Reuters that the deal would receive careful scrutiny by U.S. regulators but would probably be approved.
“Drugstore services have evolved substantially in the past several years, and the market is becoming robustly competitive, with substantial competition from supermarkets and mass merchants,” he said.
Both Rite Aid and Walgreens have a major presence in states like California, New York and Massachusetts, while in others, including Florida, Texas and Illinois, there is no overlap.