Walgreens, Rite Aid to shed 865 stores to seal merger
Walgreens and Rite Aid will sell 865 stores to rival retailer Fred’s for $950 million, potentially removing the final roadblock thwarting a massive merger between the nation’s largest and third-largest drugstore chains.
Wall Street certainly saw it that way, sending shares of all three companies higher in early trading Tuesday.
Walgreens is working to close its $9.4 billion purchase of Rite Aid early next year. It said Tuesday that it’s selling the Rite Aid stores in response to concerns raised by federal anti-trust regulators. The deal still needs to be approved by the Federal Trade Commission, which recently rejected a proposed $5.5 billion merger of office-supply chains Staples and Office Depot.
Walgreens Boots Alliance Inc., based in Deerfield, Ill., announced in October 2015 that it planned to buy Rite Aid in a deal that would create about 12,000 U.S. locations. That’s several thousand more than the nearest competitor, CVS Health Corp.
The combination is expected to give Walgreens beefed-up negotiating muscle with drugmakers and other suppliers and to help enlarge its presence in the Northeast and in Southern California. But the nation’s largest drugstore chain also knew it would have to drop some stores to ease regulatory worry about competition.
Shortly after announcing the deal, Walgreens said it was willing to divest up to 1,000 stores to win regulatory approval, but it expected it wouldn’t have to sell more than 500.
Fred’s runs 647 general merchandise discount stores clustered mainly in the Southeast, and it operates 371 full-service pharmacy departments within its stores. It also runs three specialty pharmacies.
The deal with Walgreens and Rite Aid would vault Fred’s from a regional force to a national player in the drug store industry with both East Coast and West Coast presences. Indeed, there could be more stores coming its way: Walgreens says its purchase agreement requires Fred’s to buy additional stores if the FTC demands the divestiture of more than 865.
Shares of Fred’s Inc., based in Memphis, Tennessee, soared 73 percent, or $8.12, to $19.27 Tuesday morning, while broader indexes started off nearly flat. Rite Aid Corp., based in Camp Hill, Pennsylvania, rose 5 percent, or 42 cents, to $8.59; and Walgreens rose 66 cents to $86.72.