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DEERFIELD, Ill. — Walgreens Boots Alliance Inc. (WBA) will divest up to 1,000 stores to gain regulatory approval for its $17.2 billion acquisition of Rite Aid Corp.Walgreens Boots Alliance Inc. (WBA) will divest up to 1,000 stores to gain regulatory approval for its $17.2 billion acquisition of Rite Aid Corp.
WBA said in a filing with the Securities and Exchange Commission that the deal allows for that many stores to be closed or sold “if required by regulators.”
But the company also said the number will probably be less than 500. Analysts agreed, putting the number of likely divestments at 400.
There is also general agreement that regulators are unlikely to derail the deal. “Even in regional markets where the combined company would have a high share, retail pharmacy competition should remain robust, and barriers to entry should remain relatively low,” said consultant Adam Fein, chief executive officer of Drug Channels Institute.
WBA said in the SEC filing that Rite Aid stores would complement Walgreens’ footprint by “filling gaps in the Northeast and Southern California so WBA will cover the entire U.S.”
The Walgreens and Rite Aid combination would create a drug chain with more than 12,700 stores. Walgreens has 8,173 outlets — including Duane Reade units — in all 50 states; Washington, D.C.; Puerto Rico; and the U.S. Virgin Islands. Rite Aid operates 4,561 stores in 31 states and Washington, D.C.
States where Rite Aid has no stores include Texas, Florida and Illinois. Its biggest overlap with Walgreens is in the Northeast and Mid-Atlantic regions. Rite Aid has more outlets than Walgreens in 14 states, including New York and Michigan. In Pennsylvania, its home state, Rite Aid has over 500 units, well more than triple Walgreens’ number. Rite Aid has about 60 fewer stores than Walgreens’ 630-plus outlets in California.
Stefano Pessina, CEO of WBA, said the company knew it needed to increase its presence and coverage nationally. “This combination will further strengthen our commitment to making quality health care accessible to more customers and patients,” he said. “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.”
WBA will bring Rite Aid its global expertise and resources to accelerate the delivery of integrated frontline care and offer innovative solutions for providers, payers and other entities in the U.S. health care system, Pessina said. “Finally, this combination will generate a stronger base for sustainable growth and investment into Rite Aid stores, while realizing synergies over time.”
Rite Aid chairman and CEO John Standley said the deal will enhance the Pennsylvania-based chain’s ability to meet the health and wellness needs of customers while delivering significant value to 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. Together with Walgreens Boots Alliance, the Rite Aid team can continue to build upon this great work through access to increased capital that will enhance our store base and expand opportunities as part of the first global pharmacy-led, health and well-being enterprise.”
The deal is expected to be accretive to WBA’s adjusted earnings per share in its first full year after closing. Additionally, WBA projects synergies in excess of $1 billion. While some of those are relatively easy to identify, “others will require investment and will take time to deliver,” said George Fairweather, the company’s global chief financial officer.
“Clearly, we are very confident that, taking everything into account, the transaction will be suitably accretive for us,” commented Fairweather.
Rite Aid is expected to initially operate under its own name. Decisions will be made over time regarding the integration of the two companies to create a fully harmonized portfolio of stores and infrastructure.
Pessina said the deal is another step in WBA’s global development and continuation of its profitable growth strategy. “In both mature and newer markets across the world, our approach is to advance and broaden the delivery of retail health, well-being and beauty products and services,” he said.
The deal is seen as the culmination of the long-running consolidation the chain drug industry. It leaves Walgreens and CVS/pharmacy — which has over 7,900 stores in 44 states; Washington, D.C.; Puerto Rico; and Brazil — at the top of the industry with no other pure play drug chain in sight.
“The pharmacy consolidation endgame has begun,” said Fein, the consultant.
