Industry News

Walgreens-Rite Aid Merger Off the Table. Walgreens to Instead Purchase 2200 Rite Aid Stores

Given concerns with anti-trust issues, Rite Aid and Walgreens have decided to call of their merger. Walgreens is expected to buy 2,200 Rite Aid stores instead, keeping in mind a muscular and expansionist Amazon which is said to be looking into entering the pharmacy chain market.

As of 30th June 2017, American pharmacy giant Walgreens has officially ended merger talks with rival Rite Aid in what was supposed to be a $9.4 billion deal. Instead Walgreens is now looking to buy around half of Rite Aid’s stores, nearly 2,200 of them, for an estimated $5.1 billion. Experts suggest that the merger was planned keeping in mind the entry of large companies such as Amazon into the pharmacy market, though neither side has confirmed or denied the claim. The deal, before it was scuppered, had been over two years in the making, with an initial $17.2 billion merger planned in October 2015. The initial deal would have seen the second and third largest pharmacy chains combine over 13,000 stores together to overtake CVS, who at that point had around 7,800 stores.

Walgreens Boots Alliance, Inc, colloquially called Walgreens, is the second largest pharmacy store chain in the United States, behind CVS. The company marks its presence in all 50 states in the US, and has over 8,100 stores in the country. Pharmacy is one of the markets that is growing at a strong rate in the United States; Walgreens alone earned approximately $30.1 billion in the last fiscal, beating investor expectations. This is not the first major acquisition Walgreens has completed in the recent, past. Walgreens purchased a 55% stake in Alliance Boots, a multinational pharmacy led group on 31st December 2014, after having already purchased 45% stake previously for $6.7 billion. The deal was estimated to cost $15.3 billion. Rite Aid is a Fortune 500 company headquarters in Pennsylvania. It had a revenue of around $30.7 billion in FY2016 and employed around 89,000 people during the same time period. Rite Aid is the third largest drugstore chain behind CVS and Walgreens, with over 4,600 stores in the United States (as of June 2017).

Experts at TechSci Research have said that Walgreens has been hugely successful in its M&A strategy as was previously seen with the Boots Alliance merger. The Walgreens-Boots combine has a presence in 25 countries, where Walgreens looks after the US operations and Boots after the international markets. The company saw a 35% increase in net sales in FY15, to $103.4 billion which grew to $117.35 billion in FY16. TechSci Research experts, however have suggested that a successful M&A strategy is not only for capturing of market share, reducing competition and streamlining supply chain logistics, but it is also keeping in mind a potential Amazon entry into the pharmacy retail-chain market. Given Amazon’s aggressive recent positioning in the overall retail markets (with the acquisition of Whole Foods etc.), it may be sensible for pharmacy companies of this sort to consolidate to compete, has a diverse and highly fractured market would be a lot easier to take over. TechSci experts estimate that the buying up of Rite Aid stores will lead to around $400 million in savings for Walgreens, but more importantly, it may also provide a significant buffer against Amazon expansion at least in the short run.


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