CHICAGO (TNS) — After years of trying, Walgreens Boots Alliance has received clearance from the Federal Trade Commission to expand its business through the purchase of 1,932 Rite Aid stores for $4.38 billion.
The FTC had long resisted a deal between Walgreens and competitor Rite Aid, forcing the two to revise terms of a transaction several times since they proposed their merger in 2015. Originally, Walgreens, based in suburban Chicago, had hoped to buy all of Rite Aid, America’s third-largest drugstore chain, in a deal then valued at $17.2 billion, including debt.
The deal announced Tuesday is smaller than the most recent agreement reached in June, which had Walgreens buying 2,186 Rite Aid stores (about half of Rite Aid’s locations), three distribution centers and other inventory for $5.18 billion. The distribution centers and inventory remain part of the deal. Most of the stores it will buy are in the Northeastern and Southern U.S., and will be converted to Walgreens stores over time.
The transaction could increase Walgreens’ ability to negotiate lower prices on products, including drugs, which could mean lower prices on some drugs for consumers, said Vishnu Lekraj, a senior analyst with Morningstar. It also allows the chain to expand its market share and go into new markets more cheaply than if it’d opened its own stores.
The smaller deal was “based on ongoing conversations with the FTC,” said Walgreens spokesman Michael Polzin in an email.
“In the grand scheme of things, we think what they got will help them in the long run,” said John Boylan, a senior equity analyst for Edward Jones.
Walgreens expects to wrap up the store purchases by spring 2018. Asked whether Walgreens plans to close any stores, Polzin said Walgreens will review its new network of stores “with a focus on customer access to convenient care,” and provide more information as decisions are made.
Walgreens had 8,175 stores before the Rite Aid deal, meaning it will have more locations than rival CVS if it keeps all its current stores and those it’s acquiring.
“This is a significant moment for our company, and we are excited about the opportunities this agreement will deliver for our customers and patients, employees and investors,” said Stefano Pessina, Walgreens executive vice chairman and CEO, in a news release.
One of Walgreens’ biggest challenges will be converting the Rite Aid stores. “They’re going to have to go through and reinvest and revamp a lot of these Rite Aid stores in order to get them up to par,” Lekraj said.
Boylan said integrating the new stores will likely mean Walgreens won’t try to expand further, at least in terms of square footage, for the time being.
Though it took longer than expected to gain the FTC’s blessing, Lekraj said it would have been difficult for Walgreens to have known exactly how much resistance it would face when it first embarked on the acquisition. He said the FTC had been concerned that the acquisition would allow Walgreens to dominate the market in certain areas, limiting competition.
The transaction could increase Walgreens’ ability to negotiate lower prices on products, including drugs, which could mean lower prices on some drugs for consumers.