Thu | Nov 23, 2017

Walgreens ends attempt to buy Rite Aid

Published:Friday | June 30, 2017 | 12:00 AM
A Walgreens drugstore in North Andover, Massachusetts. (AP Photo/Elise Amendola, File)

Walgreens has ended its takeover pursuit of rival Rite Aid following resistance from United States regulators and will instead now buy stores, distribution centres and inventory in a new deal.

The proposed merger, first announced in 2015, was initially for about US$9.4 billion but was whittled down to about US$6.8 billion earlier this year.

For scrapping the transaction, Walgreens Boots Alliance will pay Rite Aid Corp a US$325 million termination fee. It will pay Fred's Pharmacy an additional US$25 million following the termination of a related asset deal.

Under the new agreement, Walgreens will buy 2,186 stores, three distribution centres and related inventory from Rite Aid for approximately US$5.18 billion in cash. Walgreens will also assume the related real-estate leases and certain limited store-related liabilities. Rite Aid will have an option, exercisable through May 2019, to become a member of Walgreen's group purchasing organisation.

Walgreens said Thursday that the stores it purchases from Rite Aid will be converted to the Walgreens brand "over time". The stores included in the agreement are mostly located in the Northeast, Mid-Atlantic and Southeast. The three distribution centres are in Dayville, Connecticut, Philadelphia and Spartanburg, South Carolina.

The new transaction is targeted to close within the next six months.

Prior to the new deal, Deerfield, Illinois-based Walgreens and Camp Hill, Pennsylvania-based Rite Aid faced a complicated task of easing antitrust concerns to complete the buyout. The companies initially expected to sell no more than 500 stores to appease regulators, but that was eventually pushed to 1,200 stores.

The combination of Walgreens, the largest US drugstore, and Rite Aid would have created a drugstore giant with more than 11,000 stores nationally, even with the sale of more than a thousand stores. That would have been a few thousand more than the nearest competitor, CVS Caremark Corp.

- AP