Rite-Aid Selling 865 Stores To Fred’s For $950 Million

Image courtesy of Fred's

What to do, what to do, when you’re merging and want to be the biggest without being too big? Divest, of course. And that’s where Rite-Aid finds itself today: in order to sell itself to Walgreens and allow their onetime-competitor to become the biggest drugstore chain in the country, it’s ready to shed several hundred stores to build a new third-place competitor.

To that end, Rite-Aid, Walgreens Boots Alliance, and Fred’s Inc. announced today that Fred’s is going to acquire at least 865 Rite-Aid stores for a cool $950 million. (So if you’ve ever wondered what a Rite-Aid is worth, the answer seems to be about $1.1 million per store.)

The Fred’s deal, as you might guess, is being made specifically to allay potential antitrust concerns the FTC has about Walgreens’ plans to acquire Rite-Aid. In the event that the FTC wants Walgreens to ditch even more stores, the terms of the deal with Fred’s requires it to purchase those extra ones, too.

At most recent count, Walgreens has about 8,100 store locations and Rite-Aid another 4,500. That means a merger would bring them well past 12,000 stores, making the new entity the largest pharmacy chain in the country (beating out CVS’s 9,600 locations).

You may not ever have heard of Fred’s, depending what part of the country you hail from. Today it’s a regional chain, geographically limited to the southeast. Specifically, Fred’s has several locations in Mississippi, Alabama, Georgia, Florida, South Carolina, North Carolina, Tennessee, Kentucky, Arkansas, and a few in Missouri, Texas, Indiana, and Oklahoma. Its first store opened in Mississippi in 1947, and its modern-day headquarters is in Memphis. According to the company website, it currently owns and operates 650 discount stores, of which 320 locations are also pharmacies.

However, after this deal, Fred’s will catapult directly onto the national stage, with nearly 1,500 locations around the country. That would make it the third-largest drugstore chain in the country, the company claims (behind Walgreens/Rite-Aid and CVS), and would “create a new national competitor.”

Walgreens and Rite-Aid are still trudging along the long, slow path to their merger. The companies announced the $9.4 billion acquisition plan in late 2015. Shareholders for Rite-Aid approved the deal in February, which made regulatory approval the next step.

Walgreens announced in September that it would happily spin off up to 1,000 store locations in order to make the deal look better to regulators; they didn’t say which brand the stores would be from, though. It’s estimated that post-merger, another 500 or so locations will close, simply for being too close — when Walgreens and Rite-Aid are the same company, you don’t need locations of both directly across the street from each other anymore.

The FTC has not yet rendered a decision about the merger, but earlier this year signs were pointing toward approval and, apparently, still are. Walgreens and Rite-Aid say they are expecting the deal to close in “early calendar 2017.”

The official handover of Rite-Aid locations to Fred’s will happen after that; Fred’s estimates it will take place sometime in the first half of 2017. After that, the stores will keep Rite-Aid branding and most of the front-line employees through a two-year transition period.

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