5:46 PM Eastern Daylight Time Oct 27, 2015 By Dana Mattioli, Michael Siconolfi and Dana Cimilluca
Walgreens Boots Alliance Inc. agreed to buy Rite Aid Corp. for about $9.4 billion, in a move that would create a drugstore giant at a time when companies in nearly every corner of the health-care industry are seeking to gain advantage from bulking up.
Walgreens agreed to pay $9 a share in cash for Rite Aid, offering a 48% premium to Rite Aid's closing price Monday. Rite Aid's stock rose 43% to $8.67 Tuesday after The Wall Street Journal reported on the deal talks. Walgreens shares rose 6.4% Tuesday to $95.16.
The deal between pharmacy chains adds to a blockbuster year for health-care mergers and acquisitions. Drug makers, hospital chains, health insurers and others have already struck some $520 billion of mergers this year, according to Dealogic, as the Affordable Care Act and other developments pressure companies to bulk up, increase leverage with suppliers and lower costs. The surge comes amid a broader wave of M&A, with 2015 set to be one of the busiest years ever for M&A.
Putting their drugstore networks together--which together include some 13,000 stores--could yield cost savings at a time when the companies have been beset by drug-cost inflation. Other benefits could be derived from marrying Walgreens' wholesale operation with Rite Aid and Rite Aid's prescription-processing operation with Walgreens.
But given they are two of the three-biggest drugstore owners in the country, the deal would be expected to draw scrutiny from antitrust regulators and big divestitures could be required to win their blessing. Both companies have big store counts in states like California, New York and Massachusetts, while in others like Florida, Texas and Illinois, there is no overlap.
As with a number of recently agreed corporate marriages that face antitrust scrutiny, Walgreens and Rite Aid are likely to argue that they compete not just with other traditional drugstore chains, but also with groceries, club stores and the like.
The companies said the deal had an enterprise value of $17.2 billion, which includes debt. Rite Aid's debt load totaled $7.4 billion in August.
Rite Aid, based in Camp Hill, Pa., has about 4,600 drugstores in 31 states. Walgreens has roughly 8,200 U.S. stores, while CVS Health Corp. has more than 7,800. In terms of market value, Rite Aid is much smaller than Walgreens and CVS, which both have values exceeding $100 billion. Rite Aid had revenue in the fiscal year ended in February of $26.5 billion. Walgreens had revenue in the 12 months ended in August 2014 of $76.4 billion, while CVS had 2014 sales of $139.4 billion.
