To ease anti-trust concerns over its $9.41 billion acquisition of competitor Rite Aid, Walgreens, the country’s largest drugstore chain, believes it will likely need to divest or sell off more stores than expected. Earlier in the acquisitions process, the chain felt that fewer than 500 of its stores would have to go; the number is closer to 1,000.
Walgreens Boots Alliance Inc. runs 8,173 U.S. stores, a total that could top 12,000 with the acquisition of Rite Aid Corp., based in Camp Hill, Pa. The deal, announced last October, could include divestiture of up to 1,000 stores if needed, but Walgreens has said it still expects to unload fewer than that.
The combination of the nation’s largest and third-largest drugstore chains would give Walgreens beefed-up negotiating muscle with drugmakers and other suppliers and enlarge its presence in the Northeast and in Southern California.
It would also put Walgreens in head-to-head competition with rival CVS in a number of markets — CVS Health Corp. runs more than 9,600 retail pharmacies — and with thousands of independent drugstores.
Shares of Rite Aid jumped about 6 percent, or 46 cents, to $8.21 in early trading. Walgreens rose $1.22 to $84.10.
Triple Net And Scrips
There are thus far no indications of where affected stores might be clustered, but the arrival of a number approaching 1,000 drugstores onto the national market is national news. It’s also a big story in investing, thanks to Walgreens’ preference for the triple net lease structure. The low risks associated with the drugstore business — inelastic consumer demand for prescriptions are the beating heart of that beast — mean suitors for affected stores are likely to come fast. 10K sq. ft and up properties on choice locations at a +6 average cap rate do tend to climb toward the top of investor / operator “like lists”.