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Rite Aid Gets FTC Nod for Sale of Fewer Stores to Walgreens
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After four amendments, Rite Aid Corp. and Walgreens Boots Alliance Inc. (WBA - Free Report) finally received a nod for the fresh proposal the latter put forward yesterday. The companies have been in talks since October 2015 to engage in a transaction – first a merger, which was terminated on antitrust concerns and replaced by Walgreens bid to buy Rite Aid stores. The second proposal, which was revised yesterday to acquire 250 lesser stores, eventually appeased the Federal Trade Commission (FTC).
Shares of Rite Aid fell 12.1% to $2.40 following the news, while Walgreens was down 1.7% closing at $81.21.
Despite yesterday’s fall, Rite Aid has grown 6.7% in the past month, outperforming the industry's increase of 5%. Meanwhile, Walgreens has improved only 0.8%, lagging the industry’s gain.
The New Bid
Walgreens revised its proposal to buy 2,186 Rite Aid stores and related assets for $5.175 billion, mainly to remove antitrust concerns. As part of the fresh bid, Walgreens will buy 1,932 Rite Aid stores, three distribution centers and related inventory in an all-cash deal. The company will now pay $4.375 billion for the deal.
However, the new proposal retained the clause which allows Rite Aid to buy generic drugs sourced through a Walgreen’s affiliate, at cost equivalent to Walgreens for about 10 years. Meanwhile, Rite Aid will provide certain transition services to Walgreens for up to three years post the deal closure. The deal has successfully completed the Hart-Scott-Rodino waiting period.
The stores to be sold under the amended deal are primarily situated in the Northeast and Southern parts of the United States. The three distribution centers, which are also part of the agreement, include those which are housed in Dayville, CT, Philadelphia and Spartanburg, SC.
Now, the companies plan to carry out the transition of ownership of stores in a phased manner, beginning in October 2017. The transition is likely to be completed by spring 2018.
Benefits to Rite Aid
The transaction is likely to benefit Rite Aid in lowering debt position and improving financial leverage and balance sheet. The company intends to use the funds from this deal to pay down a part of its huge debt. The deal will also make Rite Aid a smaller, but stronger firm with lesser exposure to the pressures of unfavorable pharmacy reimbursement rates, which has been a hindrance for the company for quite some time now.
Following the completion of the transaction, Rite Aid will operate about 2,600 stores and six distribution centers, alongside EnvisionRx — its pharmacy benefit manager; RediClinic and Health Dialog.
The Background
Walgreens-Rite Aid had initially agreed to a merger agreement in October 2015, which fell apart after two years of investigation by the FTC in June 2017. Replacing the older agreement, Walgreens agreed upon a fresh bargain to buy 2,186 Rite Aid stores, associated distribution assets and inventory, for $5.175 billion as well as termination charges of $325 million.
Conclusion
With the approval of this long awaited deal, Walgreens is now ready to become the No. 1 drugstore chain in the United States by size, leaving behind CVS Health Corp. (CVS - Free Report) . Further, Rite Aid will occupy the third spot. While Walgreens will gain from a significant expansion of its footprint, Rite Aid will be well poised to improve its financial leverage by paying down huge debts.
Both Rite Aid and Walgreens currently carry a Zacks Rank #3 (Hold).
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Rite Aid Gets FTC Nod for Sale of Fewer Stores to Walgreens
After four amendments, Rite Aid Corp. and Walgreens Boots Alliance Inc. (WBA - Free Report) finally received a nod for the fresh proposal the latter put forward yesterday. The companies have been in talks since October 2015 to engage in a transaction – first a merger, which was terminated on antitrust concerns and replaced by Walgreens bid to buy Rite Aid stores. The second proposal, which was revised yesterday to acquire 250 lesser stores, eventually appeased the Federal Trade Commission (FTC).
Shares of Rite Aid fell 12.1% to $2.40 following the news, while Walgreens was down 1.7% closing at $81.21.
Despite yesterday’s fall, Rite Aid has grown 6.7% in the past month, outperforming the industry's increase of 5%. Meanwhile, Walgreens has improved only 0.8%, lagging the industry’s gain.
The New Bid
Walgreens revised its proposal to buy 2,186 Rite Aid stores and related assets for $5.175 billion, mainly to remove antitrust concerns. As part of the fresh bid, Walgreens will buy 1,932 Rite Aid stores, three distribution centers and related inventory in an all-cash deal. The company will now pay $4.375 billion for the deal.
However, the new proposal retained the clause which allows Rite Aid to buy generic drugs sourced through a Walgreen’s affiliate, at cost equivalent to Walgreens for about 10 years. Meanwhile, Rite Aid will provide certain transition services to Walgreens for up to three years post the deal closure. The deal has successfully completed the Hart-Scott-Rodino waiting period.
The stores to be sold under the amended deal are primarily situated in the Northeast and Southern parts of the United States. The three distribution centers, which are also part of the agreement, include those which are housed in Dayville, CT, Philadelphia and Spartanburg, SC.
Now, the companies plan to carry out the transition of ownership of stores in a phased manner, beginning in October 2017. The transition is likely to be completed by spring 2018.
Benefits to Rite Aid
The transaction is likely to benefit Rite Aid in lowering debt position and improving financial leverage and balance sheet. The company intends to use the funds from this deal to pay down a part of its huge debt. The deal will also make Rite Aid a smaller, but stronger firm with lesser exposure to the pressures of unfavorable pharmacy reimbursement rates, which has been a hindrance for the company for quite some time now.
Following the completion of the transaction, Rite Aid will operate about 2,600 stores and six distribution centers, alongside EnvisionRx — its pharmacy benefit manager; RediClinic and Health Dialog.
The Background
Walgreens-Rite Aid had initially agreed to a merger agreement in October 2015, which fell apart after two years of investigation by the FTC in June 2017. Replacing the older agreement, Walgreens agreed upon a fresh bargain to buy 2,186 Rite Aid stores, associated distribution assets and inventory, for $5.175 billion as well as termination charges of $325 million.
Conclusion
With the approval of this long awaited deal, Walgreens is now ready to become the No. 1 drugstore chain in the United States by size, leaving behind CVS Health Corp. (CVS - Free Report) . Further, Rite Aid will occupy the third spot. While Walgreens will gain from a significant expansion of its footprint, Rite Aid will be well poised to improve its financial leverage by paying down huge debts.
Both Rite Aid and Walgreens currently carry a Zacks Rank #3 (Hold).
Still Wanting Exposure in the Drugstore Segment?
Investors interested in the Drugstore space can invest in Herbalife LTD. (HLF - Free Report) . The stock has gained whopping 39.6% year to date and has a VGM Score of A. Moreover, it currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>