Wal­greens scraps Rite Aid bid, will in­stead buy stores

Lodi News-Sentinel - - Business - By Lisa Schencker

CHICAGO — Wal­greens Boots Al­liance is scut­tling its years­long ef­fort to buy com­peti­tor Rite Aid and will in­stead buy more than 2,000 of its stores for $5.18 bil­lion.

The less-am­bi­tious move fol­lows re­sis­tance from fed­eral reg­u­la­tors since the two drug­store chains first pro­posed a merger in 2015. Thurs­day morn­ing’s an­nounce­ment rep­re­sented the sec­ond time the two com­pa­nies have tin­kered with terms of a trans­ac­tion, as they tried to win ap­proval from the Fed­eral Trade Com­mis­sion.

Wal­greens, based in subur­ban Chicago, also has agreed to pay Camp Hill, Pa.-based Rite Aid a $325 mil­lion fee for end­ing the ear­lier agree­ments.

Un­der the terms of the new deal, Wal­greens will ac­quire 2,186 Rite Aid stores, rep­re­sent­ing about half of its lo­ca­tions, three dis­tri­bu­tion cen­ters and other Rite Aid in­ven­tory. Wal­greens ex­pects to con­vert the Rite Aid stores into Wal­greens stores. The deal is ex­pected to close within the next six months, pend­ing reg­u­la­tory ap­proval.

“Given the changes in the mar­ket dur­ing the longer than ex­pected Fed­eral Trade Com­mis­sion re­view process and the on­go­ing un­cer­tainty about the po­ten­tial out­come, we have de­cided, af­ter de­tailed dis­cus­sion with Rite Aid, not to con­tinue to pur­sue the ac­qui­si­tion of the whole com­pany,” said Wal­greens CEO and Ex­ec­u­tive Vice Chair­man Stefano Pessina, in an earn­ings call Thurs­day.

He said the new deal re­mains true to the strat­egy be­hind the orig­i­nal agree­ment and will be sim­pler to de­liver. Pessina also said the new trans­ac­tion takes into ac­count is­sues pre­vi­ously raised by reg­u­la­tors.

Pessina said Wal­greens would de­cide later whether it will sell or close any Rite Aid stores.

A Wal­greens spokesman de­clined to make Pessina avail­able for an in­ter­view Thurs­day.

The FTC will “re­view any new trans­ac­tion pro­posed by the par­ties,” said Tad Lip­sky, act­ing di­rec­tor of the com­mis­sion’s Bureau of Com­pe­ti­tion, in a state­ment Thurs­day.

The com­mis­sion’s staff had “thor­oughly in­ves­ti­gated the po­ten­tial im­pact that the pro­posed Wal­greens/Rite Aid merger may have had on com­pe­ti­tion and eval­u­ated a num­ber of di­vesti­ture pro­pos­als put for­ward by the par­ties” when the com­pa­nies were still pur­su­ing their old deal, he said.

Wal­greens first an­nounced its in­ten­tion to ac­quire Rite Aid, Amer­ica’s third-largest drug­store chain, in 2015. At the time, the deal was val­ued at about $17.2 bil­lion, in­clud­ing debt.

But fac­ing reg­u­la­tory push­back, Wal­greens an­nounced in De­cem­ber 2016 that it would sell 865 Rite Aid stores to Fred’s Phar­macy for $950 mil­lion. Then in Jan­uary, Wal­greens slashed its of­fer for Rite Aid by more than $2 bil­lion.

Fred’s will re­ceive $25 mil­lion as re­im­burse­ment for ex­penses of the now-ter­mi­nated deal.

Shares of Wal­greens closed up about 1.7 per­cent, and Rite Aid’s stock fell more than 26 per­cent.

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