Walgreens-Rite Aid Clock Runs Down With No Extension

  • FTC hasn’t communicated its antitrust findings, Walgreens said
  • CEO Pessina says boards can decide to extend Jan. 27 deadline

Walgreens Boots Alliance Inc. Chief Executive Officer Stefano Pessina says he still believes in his company’s purchase of Rite Aid Corp., but declined to say whether the companies will extend the deal just three days from their agreed deadline to complete the merger.

The acquisition hasn’t yet received antitrust approval from the Federal Trade Commission, and Walgreens hasn’t made a key filing saying it’s answered all the agency’s questions. Once it does, that would give the FTC another 30 days to decide whether to approve the deal or sue to stop it. The companies had agreed to close the planned $9.4 billion merger, which would create the largest drugstore chain in the U.S. by number of stores, by Friday. 

Extending the deadline “is a matter for the boards,” Pessina said Tuesday in a meeting at Bloomberg’s New York office. “I cannot anticipate what they will do.” He said he had been instructed by his lawyers not to comment further on what might happen.

Walgreens would likely have to pay Rite Aid a $325 million breakup fee if either side walks away. A Rite Aid representative declined to comment on the deal or whether the companies are planning to extend the deadline. A representative of Fred’s Inc., to whom Walgreens and Rite Aid proposed to sell 865 stores to try to gain approval on the Rite Aid deal, declined to comment.

Rite Aid rose 0.7 percent to $6.95 at the close in New York, while Walgreens declined 0.4 percent to $81.23. Fred’s increased 0.9 percent to $15.14.

FTC Officials

Bloomberg News reported on Friday that Walgreens’s plan to win antitrust clearance for its acquisition of Rite Aid hasn’t satisfied FTC officials. The agency’s lawyers reviewing the deal aren’t sold on Walgreens’s plan to resolve competition concerns by selling stores to Fred’s, people familiar with the process have said.

Walgreens head of communications, Chuck Greener, said his company hasn’t received “official notice” from the FTC on whether it would approve the merger in its current form. The agency has asked Fred’s for additional information, he said, declining to comment further.

Walgreens already postponed the deal’s deadline to Jan. 27 from Oct. 27 and said it expected the transaction to be completed early this year.

‘Boards Will Decide’

“The deal is still there,” Pessina said at the meeting. “The two companies have the right to walk away if they want, and the two boards will decide what to do.”

While either company can terminate the deal after the Jan. 27 deadline, they can also agree to extend the date again, even if they haven’t yet gained antitrust clearance, said Bloomberg Intelligence analyst Jennifer Rie.

Analysts have long argued about the possibility of Walgreens buying a pharmacy benefit manager such as Express Scripts Holding Co. Pessina himself fueled further speculation a year ago when, responding to an analyst asking whether he would buy a PBM, he replied: “Any kind of vertical integration is good.”

In the interview Tuesday, the CEO said he wasn’t interested in acquiring a PBM, in part because the business model for traditional benefit managers is under pressure and will likely have to change over time. The profit margin some PBMs get “is a little too rich” for the services that are provided, he said.

The fact that Walgreens is “very willing” to do joint ventures with Express Scripts “doesn’t mean we want to buy them, and doesn’t mean at all that they want to be bought.”

Pessina added that he has no interest in hostile deals, as that makes integration of the companies very difficult.

(Corrects day of interview in the 12th paragraph, in a story that ran yesterday.)
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