Walgreens Will Sell Off Up To 1,000 Stores To Get Approval For Rite Aid Acquisition

Image courtesy of oracorac

When two companies in the same business want to merge, a common condition placed on the merger by authorities may be that one or both companies sell part of its business so there’s still some competition in the market. It looks likely that the Federal Trade Commission will approve the proposed merger of Walgreens Rite Aid, but Walgreens may have to give up more locations before the deal goes through.

What does that mean? In areas where there are both Walgreens and Rite Aid stores (sometimes on different corners of the same intersection) they can’t all become Walgreens stores: that doesn’t make business sense. The chain would have to either close some of them down or sell them to a third company, perhaps a smaller or regional competitor.

Walgreens and Rite Aid proposed this merger back in 2015, and Rite Aid’s shareholders approved the deal in February of this year. Since then, the mega-deal has waited for approval from the FTC.

One question that drugstore customers, investors, and competing pharmacy chains have wondered about since the deal was first announced is how many stores the combined mega-chain would divest. Some analysts estimated early on that the chains would either close or sell a combined 3,000 stores. For perspective, Walgreens currently has 8,173 stores, and Rite Aid around 4,500.

Later, the CEO of Walgreens estimated that it would need to sell only around 500 stores. Today, the company revised that estimate a bit, saying that it expects to sell off more than 500 stores, but fewer than 1,000.

The stores could sell to an existing chain, or a backer could appear to repeat what happened in the great Dollar-ish Store Merger of 2015: private equity firm Sycamore Partners started a new chain under a new name after buying a few hundred discarded Family Dollar stores.

Combining with Rite Aid would help Walgreens expand in the Northestern U.S. and in California, but more importantly would put the company in a stronger negotiating position with both health insurance companies and pharmaceutical companies.

Will this necessarily translate into lower prices for the patients who get their prescriptions filled there? That’s what we’ll find out if the deal finally goes through, which both Walgreens and FTC-watchers expect it to do.

Walgreens to Divest Additional Stores for Pending Rite Aid Tie-up [Wall Street Journal]
As US puts breaks on megadeals, Walgreens prepares to unload [Associated Press]