Last updated on June 30th, 2017 at 02:15 pm
Walgreens Boots Alliance (WBA) is expected to purchase about half of Rite Aid’s stores as part of a new merger agreement announced Thursday.
The proposed deal will give Walgreens 2,186 Rite Aid units for approximately $5.2 billion vs. Rite Aid’s full store fleet of nearly 4,600 that Walgreens said it intended to purchase in an original agreement announced in October 2015. That deal called for Walgreens to acquire all of the outstanding shares of Rite Aid for $17.2 billion. Rite Aid will receive a $325 million termination fee in connection with that original deal. In turn, a divestiture agreement with Fred’s Inc. also has been terminated.
“The decision to terminate the (original) merger agreement follows feedback received from the Federal Trade Commission that led the company to believe that the parties would not have obtained FTC clearance to consummate the merger,” the companies said in a statement.
“While we believe that pursuing the merger with WBA 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, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets,” said Rite Aid Chairman & 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 2,186 stores included in the agreement are primarily located in the Northeast, Mid-Atlantic and Southeast. The three distribution centers included in the agreement are located in Dayville, Connecticut, Philadelphia and Spartanburg, South Carolina. Under the terms of the agreement, Rite Aid will provide certain transition services to WBA for up to three years after the closing of the transaction.
In an internal memo to associates, Standley and Ken Martindale, CEO of Rite Aid Stores and president of Rite Aid Corp., said, “This marks a significant change for all of us at Rite Aid…
“There is no doubt that the merger process took much longer than anticipated when we first announced the initial agreement in October 2015. Throughout this process, our belief was that pursuing the merger was the right thing to do. However, feedback from the Federal Trade Commission led us to believe that the parties would not have obtained regulatory approval to consummate the merger.
“In this context, we took a hard look at the realities of our current business environment, specifically the pharmacy margin challenges that have negatively impacted our performance as well as our high debt levels. We believe the completion of the asset purchase transaction will help us address both of these issues.”
The transaction, which is expected to close within six months, has been approved by the boards of directors of Rite Aid and WBA and is subject to antitrust clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions. Approval of the transaction does not require a shareholder vote.
Is there a time frame for the purchase of the Rite Aid stores?
The story indicates the deal would be done by the end of the year if it’s allowed to go through.