Walgreens plans to buy Rite Aid for $9.4 billion

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Walgreens Boots Alliance on Tuesday announced plans to acquire competitor Rite Aid for $9.4 billion. With assumed debt from Rite Aid, the deal would be worth $17.2 billion.

Walgreens Boots Alliance on Tuesday announced plans to acquire competitor Rite Aid for $9.4 billion. With assumed debt from Rite Aid, the deal would be worth $17.2 billion.

If approved by the U.S. Federal Trade Commission, analysts believe the acquisition will improve Walgreens’ ability to negotiate drug prices and to hold off challenges from competitors. Walgreens is the nation’s largest pharmacy chain and Rite Aid is the third largest.

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Walgreens said it expects the deal to close during the second half of 2016 and that Rite Aid will operate as a wholly owned subsidiary of Walgreens. Rite Aid pharmacies would initially continue to operate under their existing name.

Walgreens anticipates cost savings of more than $1 billion from buying Rite Aid. However, during a webcast on Wednesday with investors and journalists, Walgreens executives did not comment on the specific areas of cost savings or speculate if regulators might force the company to divest itself of some of the Rite Aid locations to maintain competitive balance in some geographic areas.

“We have done significant analysis on how we can bring the two companies together, including the antitrust analysis, and we’ll work closely with regulators to bring the transaction to completion as soon as possible,” George Fairweather, Walgreen’s executive vice president and global chief financial officer, said during the webcast.

Fairweather added: “We must recognize that while some of the [synergies] are relatively easy to identify, others will require investment and will take time to deliver.”

 

Stefano Pessina, Walgreens Boots Alliance’s executive vice chairman and CEO, on Tuesday said the acquisition would strengthen the company’s commitment to making healthcare accessible to more customers and patients.

“Our complementary retail pharmacy footprints in the U.S. will create an even better network, with more health and wellness solutions available in stores and online,” Pessina said in a statement.

John Standley, Rite Aid’s chairman and CEO, said the deal would also bring significant value to Rite Aid shareholders. "This transaction is a testament to the hard work of all our associates to deliver a higher level of care to the patients and communities we serve,” Standley said in a statement.

At least one analyst said the pending deal would strengthen Walgreens’ ability to negotiate better reimbursement rates from insurance companies and pharmacy benefit managers.

“Even with its debt, Rite Aid could have survived into the future. But this combination will give the new business a lot more scale,” Adam J. Fein, president of Pembroke Consulting, told the New York Times. “The combined entity will have a lot more power against pharmacy benefit managers and other payers. They will be able to negotiate higher reimbursements for prescriptions.”

B. Douglas Hoey, RPh, MBA, CEO of the National Community Pharmacists Association, urged regulators to closely scrutinize the Walgreens/Rite Aid deal. “This merger would create an entity with approximately 12,000 retail pharmacies,” Hoey said in a statement. “That’s nearly 20% of the brick and mortar pharmacies in the U.S.”

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