Walgreens’ Merger with Rite Aid Shifts as Deadline Passes
One of the biggest stories in the health and wellness industry over the last year has been the pending merger of two giants, Walgreens & Boots Alliance (known to consumers as Walgreens) and Rite Aid. The two pharma retail giants have been in talks for an extended period of time as the Federal Trade Commission (FTC) digs into the details.
To put this merger in perspective, in the Rite Aid Letter to Investors for 2016 the company asserted they increased revenue by nearly 16 percent—from $26.5 billion in 2015, to $30.7 billion this past year. Walgreens also “adjusted diluted net earnings per share increase 18.3 percent to $4.59”. Needless to say, these companies are established and have substantial reach in the market place. To combine them would create an even stronger company with an extended national US reach (one of the main reasons for any merger) with each side filling the others distribution/retail holes. Rite Aid’s strengths lie on the east and west coasts, while Walgreens strongest areas are in central USA. (This is not to mention the implications for Europe and the potential for expansion into other territories.)
We have seen a lot of ups and downs with this merger as talks continue, despite an overall sentiment of positive collaboration throughout the process. The $9 per share Walgreens initially agreed to pay when it first made the deal in October 2015 has shifted due to mounting concerns about regulatory approval. The price has now dropped to somewhere between $6.50 to $7 per share to Rite Aid shareholders, depending on the number of stores it must divest. Bacause of this shift, both companies took a hit on the trading floor. Walgreens fell 2.7% to $81.25 in the late afternoon trade, while Rite Aid crashed 13.3% to $7.46.
This does not bode well for the merger. Normally in these situations, both companies would gain some form of traction in the market. Many are saying this could be just a minor hiccup in a process that is taking longer than expected – and that’s most likely all it is.
Simply stated, “the combined company would become America’s biggest drugstore chain, with a 46 percent market share, surpassing CVS” reported the New York Post, and would be the first pharmacy retail-led health and wellness enterprise. There is money and market share up for grabs, and both companies feel they have a better shot at the gold pot at the end of the rainbow together than apart.
The agreement deadline has been pushed to July 31, 2017 with a host of stipulations placed on both companies depending on where their prices land by that time. The deal will be contingent on approval by the FTC, Rite Aid shareholders and other standard regulatory bodies.
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