WSL Future of Health Event

WBA offers update on acquisition

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DEERFIELD, Ill. — Walgreens Boots Alliance Inc. (WBA) has raised the number of stores it expects to sell or close to win government approval for its $17.2 billion purchase of Rite Aid Corp.

WBA said this month that between 500 and 1,000 Walgreens and/or Rite Aid stores will most likely need to be divested to gain clearance for the deal from the Federal Trade Commission. The company previously indicated that it was willing to shed up to 1,000 stores to gain regulatory approval but expected divestitures to be less than half that number. Together, Walgreens and Rite Aid would create the largest U.S. chain drug retailer, with more than 12,700 stores.

WBA said that it and Rite Aid “remain actively engaged” in talks with the FTC as the agency reviews the acquisition, which was announced last October. “As a result of the progress of these discussions with the FTC staff, Walgreens Boots Alliance is exploring potential divestiture remedies to address certain issues,” WBA said in a statement.

The company added that it continues to believe that the acquisition will close in the second half of the year.

In reporting third quarter results in July, WBA said the acquisition was “progressing as planned” and that it was “continuing its integration planning.”

In the statement this month, the company said it expects the acquisition to be accretive to adjusted earnings per share in the first full year after the deal is finalized. It added that it continues to expect acquisition synergies of over $1 billion, which would be fully realized within three to four years.

These synergies have been updated where practicable and, as previously disclosed, are expected to be derived primarily from procurement, cost savings and other operational matters,” WBA said.

The update on the merger followed media reports naming Kroger Co. as a possible buyer of divested stores. CVS Health — currently the largest drug store operator, with about 9,600 units — has also been mentioned as a potential purchaser. Analysts have said that FTC approval of the deal may hinge on one or more large, financially solid companies being ready to buy stores.

Walgreens, which already has stores in all 50 states and Washington, D.C., has said that the addition of Rite Aid will fill gaps in its operating area in the Northeast and Southern California. Walgreens has 8,150 stores, including outlets in Puerto Rico and the U.S. Virgin Islands, while Rite Aid operates 4,560 stores in 31 states and the District of Columbia. The Northeast and Mid-Atlantic regions appear to be where Rite Aid will bring the biggest benefit in coverage.

Wolfe Research analyst Scott Mushkin recently noted that the concentration of stores being created in a number of markets loomed as a regulatory hurdle. “While we have long believed that the transaction seems to go directly against the FTC/DOJ [Department of Justice] guidelines, one possibility could be that the FTC requires more store divestitures than are being contemplated by the merger agreement,” he wrote. Increased divestitures “may be the path of least resistance,” he said.


ECRM_06-01-22


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