Walgreens scraps Rite Aid bid, will instead buy stores

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.