US drugstore industry consolidates as Walgreens Boots Alliance acquires Rite Aid
The United States drugstore industry just got more compact. Today Walgreens Boots Alliance Inc. announced that it has entered into an agreement to fully acquire Rite Aid, bringing one of its largest competitors into its fold in a cash transaction ultimately valued at $17.2 billion.
That valuation includes all outstanding shares at a rate of $9 per share—a 48 percent premium over Rite Aid’s closing price on October 26—plus acquisition of net debt. But in acquiring Rite Aid, the third largest drugstore chain in the United States, Walgreens Boots Alliance could gain the strength to overtake its greatest competitor CVS Health, currently the largest pharmacy chain in the United States by a rather large margin. Walgeens Boots Alliance also sees this as an opportunity to increase the level of care and customer service currently offered at Rite Aid, advancing consumer wellbeing overall.
“Today’s announcement is another step in Walgreens Boots Alliance’s global development and continues our profitable growth strategy,” said Walgreens Boots Alliance Executive Vice Chairman and CEO Stefano Pessina in a press release issued by the company to announce the acquisition. “In both mature and newer markets across the world, our approach is to advance and broaden the delivery of retail health, wellbeing and beauty products and services. This combination will further strengthen our commitment to making quality healthcare accessible to more customers and patients.”
Pessina added that, while Rite Aid and Walgreens share similar footprints in the United States as retail pharmacy chains, the merger will lead to the creation of a stronger network and a better level of care for customers. “Walgreens Boots Alliance will provide to Rite Aid its global expertise and resources to accelerate the delivery of integrated frontline care, and to offer innovative solutions for providers, payers and other entities in the U.S. healthcare system,” said Pessina. “Finally, this combination will generate a stronger base for sustainable growth and investment into Rite Aid stores, while realizing synergies over time.”
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Rite Aid Chairman and CEO John Standley also commented on the benefits that this acquisition will bring to the Rite Aid brand, which for now will continue to be run under its existing brand name as a wholly owned subsidiary of Walgreens (though that may change with time).
“Joining together with Walgreens Boots Alliance will enhance our ability to meet the health and wellness needs of Rite Aid’s customers while also delivering significant value to our shareholders,” said Standley. “This transaction is a testament to the hard work of all our associates to deliver a higher level of care to the patients and communities we serve. Together with Walgreens Boots Alliance, the Rite Aid team can continue to build upon this great work through access to increased capital that will enhance our store base and expand opportunities as part of the first global pharmacy-led, health and wellbeing enterprise.”
There is little doubt that a merger of this size will trigger an investigation by the Federal Trade Commission, who may raise questions of antitrust issues involved in such massive consolidation of the drugstore industry. But with the approval of both boards of directors, as long as the merger passes inspection it is expected to close by the second half of 2016.
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