DEERFIELD, Ill., and CAMP HILL. Pa. -- Rather than continue to chase a complete merger with Rite Aid Corp., Walgreens Boots Alliance Inc. has chosen to scale back its plan and acquire about half of the Pennsylvania-based chain's stores.
Walgreens Boots Alliance has forged a new definitive agreement with Rite Aid under which Walgreens will purchase 2,186 drug stores, related distribution assets and inventory from Rite Aid for $5.175 billion.
This new agreement replaces the previous $9.4 billion merger agreement with Rite Aid, announced in October 2015 and amended in January 2017, as well as an agreement to divest 865 Rite Aid stores to Memphis, Tenn.-based Fred’s Inc., announced in December 2016. Both of these agreements have been terminated, and Walgreens will pay Rite Aid the $325 million termination fee with respect to their merger agreement.
The decision to terminate the merger agreement follows feedback received from the Federal Trade Commission (FTC) that led the company to believe that the parties would not have obtained FTC clearance to consummate the merger.
The 2,186 stores included in the new agreement are primarily located in the Northeast, mid-Atlantic and Southeast regions of the United States. The three distribution centers are located in Dayville, Conn.; Philadelphia; and Spartanburg, S.C.
Upon the initial closing of the new transaction, Walgreens will begin acquiring the stores and related assets on a phased basis over a period of about six months, and intends to convert acquired stores to the Walgreens brand over time.
“This new transaction extends our growth strategy and offers additional operational and financial benefits,” said Walgreens Boots Alliance Executive Vice Chairman and CEO Stefano Pessina. “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. We believe this new transaction addresses competitive concerns previously raised with respect to the prior transaction and will streamline and simplify the transition for customers, team members and other stakeholders.”
“While we believe that pursuing the merger with [Walgreens] was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multiregional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets,” said Rite Aid Chairman and CEO John Standley. “The transaction offers clear solutions to assist us in addressing our pharmacy margin challenges and allows us to significantly reduce debt, resulting in a strong balance sheet and improved financial flexibility moving forward.”
The companies said they expect the transaction to close within six months. It has been approved by the boards of Rite Aid and Walgreens and is subject to antitrust clearance and other customary closing conditions. Approval of this transaction does not require a shareholder vote.
Rite Aid, Camp Hill, Pa., has more than 4,500 drug stores in 31 states and the District of Columbia.
Deerfield, Ill.-based Walgreens Boots Alliance is a global, pharmacy-led health and well-being enterprise with more than 13,200 drug stores in 11 countries.
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