Walgreens Buying Rite Aid For $17.2 Billion

Walgreens is buying Rite Aid in a merger worth $17.2 billion. The giant pharmacy deal signed on Monday will make Walgreens the largest U.S. drugstore chain by far.

The Walgreens-Rite Aid merger comes after much speculation from analysts who predicted the acquisition. As reported in April by the Inquisitr, Walgreens announced several of its retail stores would be closing. Many experts took that as a sign the company was poised for a takeover of its rival competitor.

In the details of the deal released Tuesday, Walgreens is buying Rite Aid for $9 per share in an all-cash deal worth $17.2 billion. This is a 48 percent premium over Rite Aid’s closing bell price on Monday. The share price includes the assumption of the company’s debts, according to a USA Today report.

Both companies expect the acquisition to be completed by late next year. As part of the merger deal, Rite Aid will keep its name and be a wholly owned subsidiary, at least for now.

According to a company statement, Walgreens buying Rite Aid makes sense for both.

“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.”

With Walgreens buying Rite Aid, the company expects to save about $1 billion over time in the form of improved purchasing power as well as cost cutting initiatives.

It would seem Walgreens is motivated and financially able to take over the industry. In a 2014 deal, Walgreens swallowed up European drug retailer Alliance Boots and bought New York drug store chain Duane Reade in 2010.

This has regulators worried about the merger who still have yet to approve. The Federal Trade Commission will need to study the deal to ensure it complies with antitrust law. Despite the scrutiny, with increased competition from grocery store chains and other retailers like Amazon, antitrust attorney David Balto thinks the deal will get approved.

“Drugstore services have evolved substantially in the past several years and the market is becoming robustly competitive, with substantial competition from supermarkets and mass merchants.”

Walgreens and Rite Aid are currently the second and third largest pharmacy chains respectively. Putting the two together limits competition and potentially restricts consumer choices.

If Rite Aid is no longer on its own in the pharmacy game, only rival drugstore chain CVS will remain as a top player against Walgreens. This is perhaps something regulators are uncomfortable with.

With an aging population and changes required by the Affordable Care Act, many in the healthcare sector are searching for ways to offer more diverse services and options. While, at the same time, looking for ways to work more closely with doctors and insurance companies.

Additionally, much of the healthcare industry has been scrambling to consolidate in an effort to save money while bargaining for lower prices from drug makers and insurance companies. Centene Corporation, a multi-national healthcare company, offered $6.3 billion for Health Net, a managed care organization, earlier this year.

According to a CNN report, CEO Stefano Pessina believes that Walgreens buying Rite Aid will enable the company to follow the industry consolidation trend. The combined company will be a strong competitor against online pharmacies and retail giants Wal-Mart and Amazon.

“This combination will generate a stronger base for sustainable growth and investment into Rite Aid stores, while realizing synergies over time,” Pessina said in a recent statement.

Additionally, the company will be able to offer “more health and wellness solutions… in stores and online.”

Walgreens is currently in 11 countries and has approximately 13,200 stores, with 60 percent of them in the U.S. Rite Aid, on the other hand, has 4,570 U.S. stores. Should Walgreens be allowed to buy Rite Aid, its largest competitor will be CVS with 7,870 U.S. stores.

The merger could leave consumers with fewer choices in the marketplace and easily make Walgreens the biggest in the industry. However, like Wal-Mart, its increased size and stature will put them in a position to negotiate better deals with suppliers and hopefully pass the savings on to consumers. They may even be able to create more and better paying jobs.

Could Walgreens buying Rite Aid be a good thing for consumers?

[Photo by Spencer Platt/Getty Images]