Walgreens Pays $9.4 Billion for Rival Rite Aid

 

Walgreens Pays $9.4 Billion for Rival Rite Aid

By Burt Carey

Walgreens reached a deal Tuesday to buy rival pharmacy Rite Aid for $9.4 billion, combining the second and third largest companies in the
retail industry.

Walgreens, Rite Aid, pharmaceuticals, health, beauty, retail, strategy, healthcareBy agreeing to take on Rite Aid’s debt, the total deal is worth about $17.2 billion and gives Walgreens an industry-leading 17,700 stores around the world that garners more than 41 percent of the pharmacy retail market. CVS Health, the No. 1 pharmaceutical chain, controls about 58 percent of the world’s market.

The acquisition comes as pharmacies shore up market share and compete with growing sales by online pharmacies, mail-order prescription dispensaries, health clinics and wholesale retailers such as Costco and Sam’s Club. By combining the companies, Walgreens hopes to negotiate better deals with drug manufacturers.

Walgreens Boots Alliance Inc., will pay $9 per share for Rite Aid Corp., a 48 percent premium over Monday’s closing price of $6.08 per share. Rite Aid shares increased to $8.67 overnight, a 43 percent bump, after the Wall Street Journal reported news of the deal. By Tuesday Walgreens stock rose 6.4 percent, to $95.16 per share.

Walgreens said Rite Aid stores will continue operating under its own brand for now. It expects to save more than $1 billion from cost cuts and combined purchasing power.

“Working together, decisions will be made over time regarding the integration of the two companies, ultimately creating a fully harmonized portfolio of stores and infrastructure,” Walgreens said in a statement.

Walgreens bought European health and beauty retailer Alliance Boots less than a year ago, and also owns Duane Reade stores in the United States. Walgreens is based in Deerfield, Ill. Rite Aid’s headquarters are in Camp Hill, Pa.

Anti-trust regulators are likely to give the deal close scrutiny. Walgreens has about 8,200 U.S. stores and 13,100 stores worldwide, while Rite Aid boasts of some 4,600 stores.

Industry analysts say some $427 billion has been spent on mergers in the healthcare industry in 2015, as hospitals, health insurers and drug manufacturers react to marketplace changes brought about by the Affordable Care Act (Obamacare). Consolidated companies help insulate against drug price inflation.

At the end of fiscal year 2014 in August, Walgreens reported revenues of $76.4 billion, while Rite Aid sold $26.5 billion in goods and services in the fiscal year that ended in February. CVS, which has more than 7,800 stores, had revenues of $139.4 billion in 2014. The drug-store industry has $263 billion in annual sales and collects about $10.3 billion in profit.

Walgreens was founded in 1901 by pharmacist Charles R. Walgreen Sr., when he bought the Chicago drugstore where he worked. It’s one of the world’s largest pharmaceutical wholesale and distribution networks. Earlier this year Rite Aid bought Envision Pharmaceutical Services, also known as EnvisionRx, for $2 billion. It’s a pharmacy-benefit management company that processes prescriptions for insurance companies and large corporations that negotiate deals with drug makers.

Walgreens CEO Stefano Pessina previously served as the executive chairman of Alliance Boots before its merger with Walgreens. He assumed his new position in July.

“Today’s announcement is another step in Walgreens Boots Alliance’s global development and continues our profitable growth strategy,” Pessina said in a statement. “In both mature and newer markets across the world, our approach is to advance and broaden the delivery of retail health, well-being and beauty products and services.”

Walgreens executives are expected to discuss the deal with investors when the company’s fourth-quarter earnings are announced Wednesday morning.

 

Source:  Sportsmans Lifestyle

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