Walgreens Is ‘Confident’ Rite Aid Deal Will Close Early 2017

  • Talks with regulators are taking longer than anticipated
  • Fiscal fourth-quarter EPS that beat analysts’ estimates

Walgreens Boots Alliance Inc. expects its planned $9.4 billion purchase of Rite Aid Corp. to close early next year, even as talks with regulators over which drugstores should be divested have taken longer than anticipated.

The shares rose as much as 4.5 percent, the biggest intraday gain in four months, after Walgreens Chief Executive Officer Stefano Pessina told analysts on a conference call that the transaction is moving through regulatory review.

“As far as we can see today, we are absolutely confident that we can do the deal,” he said.

Earlier on Thursday, Walgreens postponed the end date of the Rite Aid agreement from Oct. 27 to Jan. 27, saying it expects the transaction to be completed in early 2017. The purchase could boost the number of U.S. pharmacies it owns to 12,000 or more from 8,200, depending on how many stores are divested.

The company also reported fiscal fourth-quarter profit that topped analysts’ estimates, as cost cutting and solid prescription growth made up for weak front-of-store retail sales in the U.S., its biggest market.

The shares were up 3 percent to $79.52 at 11:02 a.m. in New York.

The slight delay in the Rite Aid deal closing time frame is a good sign, because it suggests that the companies are sorting out which stores to divest with the regulators, according to Ross Muken, an analyst at Evercore ISI who recommends buying the shares. It means regulators aren’t outright blocking the deal.

“The longer the process takes the more likely it is to close,” he said in a note to clients.

Earnings, excluding some items, were $1.07 a share in the quarter ended Aug. 31, the drugstore chain said in a statement, topping the 99-cent average of predictions compiled by Bloomberg. But revenue fell short of predictions. U.S. same-store retail sales, which exclude newest locations, declined 0.3 percent.

In spite of renovations of its stores’ cosmetics areas to bring in more shoppers, especially health-conscious women, the Deerfield, Illinois-based company has so far failed to boost sales of front-of-store products. Same-store retail sales in the U.S. have declined in three out of the past four quarters.

Other highlights from the statement:

  • Revenue rose 0.4 percent to $28.6 billion, lower than the $29.1 billion average of estimates. 
  • The stronger dollar hurt units from abroad. Sales gained 2.5 percent excluding the impact from currencies
  • Sales, general and administration costs declined 4.9 percent
  • The company forecast fiscal 2017 adjusted earnings per share of $4.85 and $5.20. The mid-range is in line with the $5.01 average of analysts’ predictions.

(A previous version of this story was corrected to provide the correct date of earnings statement.)

Before it's here, it's on the Bloomberg Terminal.