Obama will handle it
Walgreens merger decision by Jan. 20: sources
President Obama’s Federal Trade Commission plans to decide before it leaves town whether to accept the proposed remedy in the Walgreens-Rite Aid merger — and approval of the $9.4 billion deal is not guaranteed, The Post has learned.
“It is most likely [FTC] Chairwoman Edith Ramirez addresses it before she leaves,” a source close to the situation said, and not leave it to a Republican-led FTC.
That means if she decides against the October 2015 merger, she could file a suit to block it next month. There is little indication yet which way she is leaning.
Walgreens this week announced a sale of 865 Rite Aid stores to much-smaller chain Fred’s Inc. for $950 million, contingent on the FTC approving the mega-merger of Walgreens, the No. 2 drugstore chain in the US, and Rite Aid, the No. 3 chain.
The combined company would become America’s biggest drugstore chain, with a 46 percent market share, surpassing CVS.
Investors in Fred’s cheered the planned sale as shares of the chain nearly doubled, to $21.57, the day after the proposal was announced. It closed at $20.20 on Friday.
The number of stores Fred’s will buy — if the deal is approved — surpasses the figure the FTC wanted as a condition to the merger, sources said.
But the issue for the FTC is Fred’s itself. The regulator has not yet approved the 648store chain as a qualified buyer for Rite Aid stores, sources said.
One possible concern for the FTC could be whether Fred’s is too small to replace Rite Aid in markets where Walgreens and Rite Aid are the only drugstore chains, and whether it would be carrying too much debt as a re- sult of the acquisition.
Meanwhile, the FTC is gun-shy when it comes to finding a remedy for big retail mergers. Recent retail failures give it reason to be cautious.
In January 2015, the regulatory agency allowed Albertsons to buy Safeway for $9.2 billion, conditioned on the supermarket chain selling 146 Western stores to Haggen Holdings, but soon after the deal, Haggen went bankrupt.
Rite Aid shares increased more than 5 percent this week, to $8.61, close to the $9 merger price. They closed at $8.39 on Friday.
On Thursday, Rite Aid reported disappointing thirdquarter results, which could prompt the FTC to be more careful in making sure a buyer of some of its stores is itself on solid financial ground.
JPMorgan in a Friday analyst’s report said it was reducing its 2017 estimate on Rite Aid’s Ebitda by 16 percent.
Rite Aid has not given any guidance due to the Walgreens merger.
Walgreens declined comment. Fred’s and the FTC did not return calls.