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Stefano Pessina: Rite Aid deal talks ‘ongoing’

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Walgreens Boots Alliance 'actively engaged with the FTC,' CEO says

NEW YORK — Walgreens Boots Alliance (WBA) is still negotiating with the Federal Trade Commission to gain antitrust clearance for its $17 billion deal to acquire Rite Aid Corp., WBA executive vice chairman and chief executive officer Stefano Pessina said at the company’s annual shareholders meeting.


Stefano Pessina

“The FTC is doing its job. The process is ongoing,” Pessina told stockholders gathered Thursday at the Park Hyatt New York hotel in Manhattan. “We’re actively engaged with the FTC and doing everything we can to support its work.”

At WBA’s annual shareholders meeting, Pessina made no new prediction about the timing of the FTC action or the outcome. “We’re actively engaged in discussions with Rite Aid about how to put in place instruments and actions to facilitate the approval process,” he said.

The update on the FTC talks comes a day before the end date for the Walgreens-Rite Aid merger agreement. In late October, WBA and Rite Aid extended the end date for the deal to Jan. 27, 2017, from Oct. 27, 2016, and projected that the transaction would close in early calendar-year 2017.

The companies originally said they expected to wrap up the merger by the end of calendar 2016. WBA announced the agreement to acquire Rite Aid for $9 per share in cash, plus assume debt, on Oct. 27, 2015.

Trading of Rite Aid shares was briefly halted on the New York Stock Exchange last Friday when its stock price — and subsequently WBA’s shares — dropped after published reports that the FTC is dissatisfied with antitrust concessions for approval of the Walgreens-Rite Aid merger.

Late last month, Fred’s Inc. had agreed to buy 865 Rite Aid stores in a $950 million deal that was widely expected to open the door for the completion of WBA’s acquisition of Rite Aid.

Analyst Brian Tanquilut of Jefferies described the recent volatility in WBA’s and Rite Aid’s share prices as “near-term noise” over speculation about antitrust approval of the merger as the deal end-date approached.

“While it is difficult to ascertain the FTC’s current stand, speculation on the deal is rising given the upcoming Jan. 27, 2017, merger deadline. Our view is that absent a final FTC blockage, WBA and Rite Aid would be open to extending the merger deadline as both parties remain committed to the deal,” Tanquilut wrote in a research note about the stock price swings.

“Should the Rite Aid deal fall through, we expect WBA to implement a sizable share buyback,” he added.

Tanquilut noted that he’s still bullish on the prospects for WBA regardless of the outcome of the Rite Aid transaction. He cited WBA’s progress with reining in general and administrative expenses as well as WBA’s recent contract wins — including Prime Therapeutics, TRICARE, and 90-day prescription deals with UnitedHealth and Express Scripts — that should spur script volume and margin improvement.

“While completion of the Rite Aid deal would be a positive for the stock and WBA’s long-term growth,” he stated, “we believe the near-term thesis on the stock still rests on volume acceleration from recent contract wins, G&A cost controls and free cash flow uptick.”


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