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Report: WBA to fine-tune Rite Aid store deal

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NEW YORK — Walgreens Boots Alliance (WBA) reportedly is modifying its agreement to buy 2,186 stores from Rite Aid Corp. to gain Federal Trade Commission approval for the deal, reached upon the termination of their planned merger.

Bloomberg reported early Monday that WBA is winding down talks with the FTC and could soon unveil an amended deal on the Rite Aid store sale, which was announced on June 29. Citing anonymous sources, the Bloomberg article said that the revised agreement would enable the store sale to move forward and the number of stores wouldn’t change significantly.

With the modified deal, the FTC would get another 30 days to come to a decision but could approve the agreement sooner if the modified transaction addresses the agency’s antitrust concerns, Bloomberg said.

As of late morning on Monday, WBA and Rite Aid hadn’t filed an amended store sale agreement with the Securities and Exchange Commission.

This latest development with WBA and Rite Aid would continue a process that has gone on nearly two years.

WBA’s original acquisition offer for Rite Aid on Oct. 27, 2015, was for $9 per share and the assumption of over $7 billion in net debt, for a total deal value of $17.2 billion.

Fifteen months later, WBA and Rite Aid amended the merger agreement on Jan. 30 of this year. The revised price for the deal was $6.50 to $7.00 per share, putting the cash portion of the transaction at about $6.84 billion to $7.37 billion — depending on the number of stores divested — plus the assumption of Rite Aid’s debt.

But then in late June, WBA and Rite Aid announced the termination of their $14 billion merger deal and unveiled a new pact in which WBA plans to buy 2,186 stores — mostly on the East Coast — plus three distribution centers and related inventory from Rite Aid for $5.175 billion in cash. WBA, too, agreed to pay Rite Aid a $325 million merger termination fee. The cancellation of the Walgreens-Rite Aid merger also meant the termination of a deal with Fred’s Inc. to acquire 865 or more Rite Aid stores slated for divestiture.

After the smaller store deal was announced, Wolfe Research analyst Scott Mushkin noted that FTC approval for the agreement wasn’t certain.

“We struggle to see how a Rite Aid ‘light’ merger will be any more palatable to the FTC than the original transaction, as many of the East Coast markets WBA wants to purchase have clear market share concentration issues,” Mushkin wrote in a research note. “We would anticipate that the company would at a minimum need to divest a number of stores in certain markets, and there remains a strong possibility that the FTC could move to block the new proposal altogether,” he added.

Later, in mid-August, WBA and Rite Aid said in filings with the SEC that they were rescheduling the waiting period for their store purchase agreement. The move reset the companies’ Hart-Scott-Rodino waiting period to expire on Sept. 18, unless extended or terminated.


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