Walgreens and Rite Aid announced Thursday, June 29th 2017 that they are no longer merging. Instead Walgreens will purchase 2,186 Rite Aid stores for $5.2 billion. This transaction will cut Rite Aid stores in half, with 2,350 stores remaining after the deal is done. The stores purchased by Walgreens will be rebranded into new Walgreen’s stores, making Walgreens the nation’s largest pharmacy.
Since the merger announcement in 2015, the agreement faced a lot of scrutiny because it would have resulted in the United States having only two major pharmacies, CVS & Walgreens. The Federal Trade Commission concerns were that Walgreens would have too much pricing power and there would be no competition in the drug store industry. Walgreens and Rite Aid attempted to rework the deal multiple times including decreasing the number of stores and adding an additional purchaser Fred, a southeastern drug store chain, to get the deal done. The deal struggled to get approval from the Federal Trade Commission and many expected the Commission to deny it by the end of June 2017. With this new proposed transaction, Walgreens and Rite Aid are confident this deal will pass although it is still subject to review and approval of the Commission. If approved, it is expected to take two to three years to purchase the Rite Aid Stores and complete the transaction.
Hopefully the transaction will help Rite Aid in the long run since they have struggled to keep stable financials. While Walgreens earnings have increased 5% last quarter, Rite Aid reported a loss of sales by 5%. With this new announcement Rite Aid shares have sunken 17% while Walgreens shares have increased 4%. It will be crucial Rite Aid develops innovative strategy to regain earnings in the drug store marketplace.