Walgreens Scraps Rite Aid Merger

Walgreens is aborting its proposed $9.4 billion deal to buy Rite Aid and has instead inked a new agreement to purchase nearly half of the East Coast drugstore chain's stores.Walgreens has agreed to pay Rite Aid $5.18 billion in cash for 2,186 of its 4,536 stores, as well as a $325 million termination fee. The deal is expected to close within the next six months pending FTC approval, at which point the drugstore chain will begin acquiring Rite Aid’s assets and converting locations to the Walgreens banner.Plans for a merger between Walgreens and Rite Aid, the first and third largest drugstore chains, respectively, lagged for more than a year after it was announced due to scrutiny from the FTC over antitrust concerns. Walgreens attempted to win approval by divesting 865 store locations to Fred’s Pharmacy, an agreement that has now been terminated.The new deal with Rite Aid, which also includes three distribution centers, increases Walgreens’ store footprint from 8,000 to over 10,000, pushing it past main competitor CVS/pharmacy, which currently operates approximately 8,000 locations as well. It also gives the retailer access to new geographic markets, a major motivator of its initial merger plan.“This new transaction extends our growth strategy and offers additional operational and financial benefits,” Stefano Pessina, chief executive officer of Walgreens Boots Alliance, the parent company of Walgreens, said in a media release. “It will allow us to expand and optimize our retail pharmacy network in key markets in the U.S., including the Northeast, and provide customers and patients with greater access to convenient, affordable care."Although the deal significantly decreases Rite Aid’s operating footprint, chief executive officer John Standley said it would solve the retailer's financial challenges.“While we believe that pursuing the merger with [Walgreens] was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets," Standley said in the release.

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