Photographer: Michael Nagle/Bloomberg

Walgreens Moves to Force U.S. Decision on Rite Aid Merger

Updated on
  • Companies tell FTC they’ve complied with information request
  • Regulators will have 60 days to approve or sue to block deal

Walgreens Boots Alliance Inc. took steps to force U.S. antitrust officials to decide within two months whether to approve its proposed takeover of rival pharmacy chain Rite Aid Corp.

The companies have notified the Federal Trade Commission that they have complied with the agency’s request for information related to the deal, a move that triggers a 60-day deadline for the commission to clear the merger or sue to block it.

The decision will come down to a proposal by Walgreens and Rite Aid to sell assets to Fred’s Inc., a smaller regional pharmacy that isn’t profitable. FTC officials have been concerned about the plan and Fred’s ability to compete effectively if the merger is approved, according to people familiar with the matter. 

“The FTC is going to be focused on making sure the divestiture bidder really is capable of being an immediate competitive threat,” said Andrea Agathoklis Murino, an antitrust lawyer at Goodwin Procter LLP in Washington. “It’s not helping Rite Aid and Walgreens that Fred’s is having its own troubles.”

Walgreens and Rite Aid have been grappling with the FTC for months in an attempt to resolve the agency’s concerns that the merger of the No. 2 and No. 3 pharmacy chains could undermine competition. In January, they extended the timeline to complete their deal to July 31 and cut the value of the transaction by at least $2 billion from the original $9.4 billion agreement. Rite Aid said last week winning approval will probably require selling 1,200 locations.

Below Deal Price

Rite Aid rose 1 percent to $4.10 at 12:05 p.m. Tuesday in New York, after the companies announced their notification late Monday. That’s well below the likely deal price of $6.50 a share -- a final price would depend on the size of asset sales -- indicating investors are skeptical of the merger’s prospect of closing. Fred’s jumped 3.3 percent to $15.44. Walgreens was up less than 1 percent to $86.17.

Walgreens spokesman Michael Polzin declined to comment beyond Monday’s news release. Fred’s declined to comment.

“We will continue to work closely with the FTC regarding the pending transaction,” Walgreens Chief Executive Officer Stefano Pessina said in the statement.

Another hurdle for Deerfield, Illinois-based Walgreens is that some deals approved by the FTC in past years failed to work out even after the companies divested assets -- precedents that could be weighing on the commission’s decision.

Last month, the agency approved a sale effectively unwinding a remedy it approved for Dollar Tree Inc.’s takeover of rival discount chain Family Dollar Stores Inc. In that settlement, Dollar Tree agreed to sell more than 300 Family Dollar locations to private-equity firm Sycamore Partners. This year, less than two years after the settlement, Sycamore asked to sell the stores to Dollar General Corp., saying it could no longer operate the stores as a viable business.

The FTC is weighing on the Walgreens-Rite Aid while its upper levels remain depleted under the new administration. President Donald Trump has yet to name a permanent candidate to lead the commission. Just two of five seats are filled, one by Democrat Terrell McSweeny and the other by Republican Maureen Ohlhausen, who is the acting chairwoman.

— With assistance by Robert Langreth

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