WBA cuts acquisition offer by at least $2 a share

DEERFIELD, Ill., CAMP HILL, Pa. — Walgreens Boots Alliance (WBA) Inc. and Rite Aid Corp. have agreed to extend the end date for their merger deal and lower the offer price.

The companies said Monday that the deal end date has been moved to July 31 — after the previous extension expired this past Friday — to give them extra time to gain regulatory approval from the Federal Trade Commission.

Meanwhile, the revised price for WBA to acquire Rite Aid has been reduced to a minimum of $6.50 per share and a maximum of $7.00 per share, which would lower the cash portion of the transaction to approximately $6.84 billion to $7.37 billion, plus the assumption of Rite Aid’s debt. The original acquisition offer 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.

WBA also upped the number of stores that could be divested for antitrust clearance of the merger. The company said it will be required to divest up to 1,200 Rite Aid stores and certain other assets if necessary for regulatory approval. That would be 200 more stores than the up to 1,000 that WBA said it was willing to divest originally. WBA had initially said it expected to have to divest less than 500 stores but then in early September raised that figure to between 500 and 1,000.

The store divestiture total will affect the ultimate share price for the deal, the companies said. The price will be set at $7.00 per share if 1,000 stores or fewer are divested and at $6.50 per share if 1,200 stores are required for divestiture. If the required divestitures fall between 1,000 and 1,200 stores, the price per share will be adjusted pro rata.

Besides FTC approval, the amended agreement is subject to approval by Rite Aid shareholders as well as other customary closing conditions.

News of the reduced acquisition offer price sank Rite Aid shares on Monday. As of mid-morning trading, Rite Aid’s stock price was $5.90 after having closed at $6.93 on Friday. Save for some periods of volatility, Rite Aid shares have been hovering over the $8 mark during the antitrust talks with the FTC.

WBA’s shares were up slightly to $81.67 in mid-morning Monday trading after Friday’s close at $81.50. The shares also opened higher on Monday, at $82.

The weekend had passed without an announcement from WBA and Rite Aid boards about their status of their merger agreement, which had lapsed according to the timeline set by the companies. 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. They originally said they expected to wrap up the merger by the end of calendar 2016.

“We’re actively engaged with the FTC and doing everything we can to support its work,” WBA executive vice chairman and chief executive officer Stefano Pessina told stockholders last Thursday at the company’s annual shareholders meeting. “We’re actively engaged in discussions with Rite Aid about how to put in place instruments and actions to facilitate the approval process,” he added.

A new wrinkle also may have appeared in the antitrust talks. Private equity firm Cerberus Capital Management, leader of the investment group that owns Albertsons, has thrown its hat into the ring as a potential buyer of the 865 Rite Aid stores that WBA and Rite Aid had agreed to divest to Fred’s Inc., the New York Post reported on Friday, citing anonymous sources.

In December, Fred’s agreed to buy 865 Rite Aid stores in a $950 million deal that was widely expected to pave the way for FTC approval of WBA’s acquisition of Rite Aid. Published reports have since said the FTC has expressed misgivings about the Fred’s deal, including whether Fred’s would be able to digest the purchase — which involves more stores than the 647 it currently operates — and become a viable operator in the drug store arena going forward.

If the WBA’s acquisition of Rite Aid eventually goes through, Walgreens would become the largest U.S. drug chain, with more than 12,700 stores in 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. CVS Health is currently the nation’s largest retail pharmacy operator, with more than 9,600 CVS Pharmacy locations, including over 1,600 inside Target stores.

Pending the outcome of its Rite Aid store purchase, Memphis, Tenn.-based Fred’s would be in line to become the No. 3 U.S. drug store operator with 1,235 pharmacies, including 370 inside Fred’s discount stores.