Walgreens and Rite Aid Cut Deal Price, May Sell More Stores

  • Under new agreement, Walgreens to pay $6.50 to $7 a share
  • Rite Aid shares plunge in afternoon trading; Fred’s gains

Walgreens Boots Alliance Inc. and Rite Aid Corp.’s giant drugstore merger got smaller Monday after the companies, facing roadblocks from antitrust regulators, cut the value of the deal by at least $2 billion and said they may divest more stores to gain approval.

Walgreens will now pay $6.50 to $7 a share for Rite Aid, the companies said in a statement, giving the deal a value of $6.84 billion to $7.37 billion. That’s down from $9 a share, or $9.4 billion, announced in 2015. The exact price will depend on how many stores the companies have to divest, as they raised the ceiling to 1,200 stores, up from 1,000.

Shares of Rite Aid plunged 17 percent to $5.75 at 1:41 p.m. in New York. Walgreens was down less than 1 percent to $81.23.

Walgreens said its fiscal 2017 earnings, excluding one-time items, will be $4.90 to $5.08 a share, down from its Jan. 5 forecast of $4.90 to $5.20. Analysts had estimated adjusted earnings of $5.02. The company no longer expects any benefit from Rite Aid in the company’s fiscal year that runs September to August.

Deal Troubles

The announcement is the latest blow to the drug chains’ attempt to combine. The new agreement also includes a six-month extension to July 31, after the companies had already approved a previous extension. Earlier this month, Bloomberg reported that Walgreens’s plan to win antitrust clearance for its acquisition of Camp Hill, Pennsylvania-based Rite Aid hadn’t satisfied Federal Trade Commission officials. Agency lawyers reviewing the deal weren’t sold on Walgreens’s plan to resolve competition concerns by selling stores to Fred’s Inc., another retail chain, people familiar with the process said at the time.

In December, Fred’s agreed to buy 865 Rite Aid locations. The chain’s shares rose 2.4 percent to $14.45, as investors bet it could end up acquiring additional stores.

A spokesman for Walgreens said that the agreement with Fred’s remains in place. Under that deal, Fred’s has agreed to buy additional stores if the FTC requires the companies to divest more properties.

— With assistance by Zachary Tracer

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