Walgreens Scores Deal With Purchase of Rite Aid Stores
June 29 2017 - 6:37PM
Dow Jones News
By Richard Teitelbaum
Walgreens Boots Alliance Inc. is getting a better deal on stores
it is buying from Rite Aid Corp. than it would have under its
merger plan, analysts said.
Walgreens announced Thursday that it would pay $5.18 billion for
2,186 stores and drop its proposed deal with Rite Aid, which was
plagued by antitrust concerns.
"If you look at the purchase price per store, it is paying $2.5
million per store," said Ajay Jain, senior analyst at Pivotal
Research Group, comparing a preliminary analysis of the new deal
with the valuation of the last iteration of the proposed
merger.
By contrast, he calculates that under the $9.4 billion amended
merger plan announced in January, Walgreens would have been paying
some $4 million per store. "The terms are more attractive," Mr.
Jain said.
Under that plan, Rite Aid would have, in effect, sold about
3,600 stores to Walgreens and up to 1,200 to regional chain Fred's
Inc.
"All around, it's a pretty good deal for Walgreens," said Vishnu
Lekraj, a senior equity analyst at Morningstar Inc., referring to
the purchase announced Thursday. "I don't believe they picked up
any debt."
Walgreens may already be putting its savings to use. In its
fiscal third-quarter earnings report Thursday, the company
announced it had authorized a share repurchase program for up to $5
billion.
A spokeswoman for Rite Aid didn't immediately return a phone
call seeking comment. Walgreens declined to comment.
The new deal also achieves many of the same strategic goals
Walgreens sought through a merger with Rite Aid.
"With the new agreement [Walgreens] will still gain incremental
scale and volume to optimize efficiency, as well as 70% [to] 80% of
the geographic coverage of the merger," wrote Charles Rhyee, senior
equity analyst at Cowen & Co. in a research note.
One uncertainty is how much Walgreens will have to spend to
upgrade the stores it acquires. "The stores could take a good
amount of investment," said Mr. Lekraj.
Rite Aid, as part of the new agreement, has an option to
purchase its generic drugs through an affiliate of Walgreens at
cost for 10 years, Rite Aid said in a statement. The prices it pays
will be close to what Walgreens pays for generics.
"It's probably the cheapest source for generics globally," said
Mr. Lekraj. "That should help them improve their position to stay
in preferred pharmacy networks."
Write to Richard Teitelbaum at Richard.Teitelbaum@wsj.com
(END) Dow Jones Newswires
June 29, 2017 18:22 ET (22:22 GMT)
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