Walgreens Boots Alliance last week announced that it has called off its proposed merger with Rite Aid.
Walgreens in October 2015 announced that it had agreed to purchase Rite Aid for roughly $9.4 billion. The deal would have merged two of the country's three largest pharmacy owners.
However, after antitrust regulators indicated they would not approve the merger, Walgreens and Rite Aid abandoned the proposal, the New York Times' "DealBook" reports.
New deal details
Instead, the companies announced a new proposal under which Rite Aid would sell 2,186 of its 4,600 stores, three of its distribution centers, and all related inventory to Walgreens for $5.18 billion in cash. Walgreens said it would transition Rite Aid stores it purchases to the Walgreens brand "over time."
According to "DealBook," the new proposal would leave Rite Aid with stores in its best-performing locations, mostly concentrated in Michigan, New Jersey, Ohio, Pennsylvania, and along the country's West Coast. In addition, Rite Aid under the new deal would be able to purchase lower-cost generic drugs through a Walgreens affiliate. Rite Aid also will receive a $325 million fee from Walgreens for terminating the companies' original merger agreement.
The new proposal is subject to regulatory approval. The companies expect to close the new deal within the next six months, the Associated Press reports. According to USA Today, the new proposal if closed would make Walgreens the nation's largest pharmacy store owner by number of locations, giving the company more than 10,200 stores throughout the United States.
John Standley, Rite Aid's chair and CEO, said, "While we're disappointed that we cannot complete the proposed merger with [Walgreens], we believe that this asset sale is an important strategic transformation for Rite Aid."
Walgreens CEO Stefano Pessina said, "We believe this new transaction addresses competitive concerns previously raised with respect to the prior transaction and will streamline and simplify the transition for customers, team members, and other stakeholders."
Norman Armstrong, a partner who specializes in antitrust law at King & Spalding, said the companies likely entered into the new deal because they believed antitrust regulators will approve it. "Based on Walgreens' understanding of the [Federal Trade Commission's (FTC)] concerns about their original deal and their proposed divestiture, the revised deal is likely to be in local areas where Walgreens knows the [FTC] doesn't have concerns and Rite Aid has certainty that the deal will close."
However, Seth Bloom, an antitrust lawyer, said the new deal still could cause concern among federal antitrust regulators. "Just because it's half the number of stores as the previous deal doesn't necessarily settle it," he said, adding, "It could make the review easier, but it's not a slam dunk yet" (de la Merced/Bray, "DealBook," New York Times, 6/29; AP/Modern Healthcare, 6/29; Bomey, USA Today, 6/29; Terlep/Kendall, Wall Street Journal, 6/29).
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Behind the flurry of M&A in recent years, a deeper trend of hospital integration is underway: the emergence of alternative partnerships that secure many of the same benefits of M&A without the financial and legal commitment: Clinical affiliation, regional collaborative, accountable care organization, and clinically integrated network.
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