Partnerships / Acquisitions

Walgreens Lowers Its Offer To Buy Rite Aid By $2 Billion

Walgreens Boots Alliance announced on Monday (Jan. 30) that it has decided to lower its offer to buy Rite Aid by $2 billion, as well as extend the deadline to complete the deal by six months. As a result, Rite Aid’s stock dropped 16 percent.

According to Fortune, the deal, worth about $9.4 billion when it was announced in Oct. 2015, is now worth between $6.8 billion and $7.4 billion. Walgreens has concerns about its ability to win government approval for the deal, which would create the largest chain of drugstores in the United States. So far, the deal has failed to win approval from the U.S. Federal Trade Commission or alleviate antitrust concerns.

There is concern that such a large merger could have too much power over pharmacy benefits managers that handle corporate and government drug plans. But the key issue seems to be the need for both companies to sell off a large amount of stores. Walgreens recently offered to sell 865 stores to a small regional chain for $950 million. It is prepared to sell off up to 1,200 stores if needed. Walgreens explained in a statement to investors that the final selling price, which fell between $6.50 and $7 per share from the original $9 per share, is contingent on how many stores it needs to sell to get approval by the FTC. The price is set at $7 per share if 1,000 stores or fewer are required for divestiture and at $6.50 per share if 1,200 stores are required for divestiture.

Walgreens currently has 13,200 stores worldwide, while Rite Aid has 4,600. This is the second time the purchase has been pushed back. Last October, the deal hit another snag when Kroger backed out of buying 650 of the Rite Aid or Walgreens stores in order to fulfill antitrust regulations.

The Wall Street Journal reported that Walgreens CEO Stefano Pessina recently told investors that the companies were working together to win the FTC’s approval but admitted there was no backup plan if the deal fell through. Walgreens and Rite Aid had initially planned to complete the deal by Tuesday but have extended the deadline to July 31, 2017.

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