Walgreens Boots Alliance scraps plans to buy Rite Aid

Walgreens store Image copyright Reuters

Global pharmacy giant Walgreens Boots Alliance has dropped its plans to buy US-based rival Rite Aid.

Instead, Walgreens has agreed to buy 2,186 Rite Aid stores and some distribution centres for $5.2bn (£4bn).

Walgreens' planned takeover of Rite Aid was first announced in October 2015.

However, it faced resistance from competition regulators as it would have seen a tie-up of the first and third largest US pharmacy chains.

"We believe this new transaction addresses competitive concerns previously raised with respect to the prior transaction," said Walgreens chief executive Stefano Pessina in a statement.

"This new transaction extends our growth strategy and offers additional operational and financial benefits."

Under the new plan, Walgreens will buy about half of the roughly 4,540 stores operated by Rite Aid. Most of the stores involved in the deal are located in the northeast, mid-Atlantic and southeast, Rite Aid said.

Walgreens will also pay Rite Aid a $325m termination fee for scrapping the prior agreement. The company also said it had dropped a related deal to sell 865 Rite Aid stores to pharmacy chain Fred's.

Walgreens Boots Alliance was created in 2014 when Alliance Boots merged with Walgreens. The business has a presence in more than 25 countries and employs more than 400,000 people.

The company earned about $1.2bn (£920m) in profit for the three months ended in May.

It has more than 8,000 stores in the US. The company said it expects the Rite Aid acquisition to bring more than $400m in savings as it makes the network more efficient.

Other partners?

The new Rite Aid plan is more attractive than the original $9.4bn, given the compromises that regulators were looking for, Mr Stefano told analysts. He said he continues to look at other possible partners for the firm, as well as ways to better use its customer data to reorganise stores.

Walgreens shares climbed about 2.5% on Thursday. But Rite Aid stock plunged more than 23% in morning trade. Shares of Fred's fell about 16%.

Rite Aid on Thursday reported a loss of about $75m (£57.7m) in the March-to-June period, due to interest payments.

The company said the sale will allow it to reduce its debt and give its pharmacy arm the ability to purchase lower cost drugs, through an alliance with Walgreens.

The US Federal Trade Commission, which had examined the prior deal, said officials would review the new proposal.

Neil Saunders, an analyst for GlobalData Retail, wrote in a note that the drug purchasing agreement means Rite Aid will "effectively" become part of the Walgreens network. That part of the deal is critical to Rite Aid's ability to survive on a smaller scale, he wrote.

"All eyes now turn to the FTC for its decision on this latest move," he wrote.

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