Walgreens-Rite Aid Ax $9.4B Merger, Strike New $5B Deal Instead

After almost two years of regulatory scrutiny, Walgreens Boots Alliance Inc. and Rite Aid Corp. have axed their plans to merge in a $9.4B deal. Instead, the two confirmed Walgreens will acquire about 50% of Rite Aid’s stores in a $5.18B cash deal.

The original merger was fraught with antitrust concerns as the combined entity would have created the largest retail pharmacy chain in the country, totaling 13,000-plus stores. The Federal Trade Commission had been weighing the decision to approve the merger since it was announced in October 2015. Rite Aid said in a statement the two agreed to cancel the original deal after being informed by the FTC that it likely would not be approved, the Wall Street Journal reports.

Under the new agreement, Walgreens will acquire about 2,200 Rite Aid stores and three distribution centers within a six-month period, converting them to the Walgreens brand. Walgreens CEO Stefano Pessina said in a statement he believes this new arrangement will better appease regulators and streamline the transaction.

Pessina had told analysts in January that the chain had no backup plans should the merger with Rite Aid fall through. The two chains had made many moves in hopes of assuaging regulator concerns, with Walgreens planning to offload 500 to 1,000 stores and Rite Aid agreeing to sell off 865 Rite Aid locations. The challenge was finding a buyer interested in the real estate. For a time, Kroger was considering buying 650 Rite Aid sites, but the giant grocer pulled out late last year. More recently Fred’s Pharmacy was named as a possible buyer to help smooth antitrust concerns for the merger, but the chain's CEO said in December there was no guarantee that a transaction would take place.  

Investors had a mixed response to Thursday's news. Rite Aid shares fell 17% in pre-market trading, the Journal reports, while Walgreens was up 4.3%.