RAD Rite Aid Corp

By Brent Kendall and Austen Hufford 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 20, 2017).

Walgreens Boots Alliance Inc. received regulatory approval to acquire nearly 2,000 stores from Rite Aid Corp., but only after the number of stores to be purchased in the deal was again trimmed to allay antitrust concerns.

Walgreens will now buy 1,932 Rite Aid stores for $4.38 billion, a far cry from the original $9.4 billion deal for about 4,600 stores struck in 2015.

Shares of Rite Aid were down 15% at $2.31 Tuesday afternoon. Walgreens was off 2% at $80.98.

Rite Aid will continue as a stand-alone company, operating about 2,600 stores, six distribution centers and its pharmacy-benefit manager, EnvisionRx. Its chief executive, John Standley, said on Tuesday the sale provides the company with a "more profitable store footprint" and stronger balance sheet as it engineers a turnaround.

The Federal Trade Commission spent roughly 18 months investigating the companies' broader plan to merge and harbored an array of concerns about the effect on competition. In the face of continued FTC objections, the two companies scrapped their merger plans in June, agreeing instead that Walgreens would settle for acquiring about 2,200 Rite Aid stores.

After further discussions with the FTC, the companies dropped about 250 more stores from the transaction, Rite Aid said Tuesday. Walgreens will gain stores located primarily in northeastern and southern U.S.

With those concessions, the FTC brought its review to a close and granted antitrust clearance for the deal, over the objections of a Democratic commissioner.

Walgreens Chief Executive Stefano Pessina said the deal "is expected to help us achieve enhanced, sustainable growth while enabling us to broaden our reach and provide greater access to convenient, affordable care in more local neighborhoods across the United States."

The deal has been approved by the boards of both companies and doesn't require a shareholder vote. Store transfers will start in October, with the goal of completing the transition in the spring of next year. Walgreens also paid a $325 million termination fee to Rite Aid.

The FTC has been reviewing the drugstore chains' proposed transaction short-handed. There are only two current commissioners on the five-member commission, one Republican and one Democrat. Both commissioners had objections to the original merger proposal, but their views diverged on the scaled-back transaction.

Acting Chairwoman Maureen Ohlhausen, a Republican, said Tuesday the stores being sold are located in areas where the two pharmacy chains aren't significant competitors "and in some places, different types of retail pharmacy providers, such as mass merchants or supermarkets like Kroger and Wal-Mart, are significant competitors."

Ms. Ohlhausen said she believed Rite Aid "will remain a robust competitor in the areas where its presence matters in the formation of retail pharmacy networks, and it will retain most or all of its stores in those areas."

The Democratic commissioner, Terrell McSweeny, disagreed with the FTC's move to clear the deal. She said the store sales would eliminate Rite Aid's presence in certain geographic regions, leaving just Walgreens and CVS Health Corp. to compete.

Ms. McSweeny said the current deal was better than the previous proposals and eliminated "many of the most obvious harms to competition." But she said she was concerned the transaction "will leave some communities with fewer pharmacy options and could lead to higher drug prices and a deterioration in non-price aspects of competition."

Write to Brent Kendall at brent.kendall@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

September 20, 2017 02:47 ET (06:47 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.