Browse Tag: walgreens

Walgreens Rite Aid Purchase Hits Antitrust Snag

English: Walgreens in Little Egg Harbor, New J...

With 13,200 stores in 11 countries including over 8,100 in the USA, Walgreens Boots Alliance, home to the venerable Walgreens drugstore brand, made big news in October 2015 when it announced its intention to acquire national drug chain Rite Aid. Rite Aid’s 4,600 stores across the US would join Walgreens in a mega-deal — pending approval by the Federal Trade Commission.

However, recent developments suggest the FTC is not happy with the idea.  By the time the dust settles, Walgreens could be compelled to kill the deal or move over 1,000 stores to the sales block in order to get the deal done

Compliance Moves Might Involve 1,200 Walgreens Stores Sold

Reuters reports that Walgreens has indicated it may sell as many as 1,200 stores to smaller chain Fred’s as a way to resolve antitrust problems under the proposed merger.
But regulators have looked at that proposal askance, as so many stores ending up in Fred’s hands would create a new national competitor, something that requires top-tier financing and commitment, which hasn’t been easy to come by, with similarly-shaped national retail merger deals including Office Depot / Staples falling through thanks to the FTC.

But the FTC may be wary of Fred’s move, and rival drugstore chain CVS reportedly has pointed out to the FTC what it says are similar deals gone bad. CVS executives say that the sale to Fred’s isn’t sufficient to ensure competition. They compare the situation to Safeway’s sale of 146 stores to Haggen Holdings in 2015 in order to win antitrust clearance for its merger with Albertsons. Haggen eventually went bankrupt and sold some stores back to Albertsons in the process. 

Some observers have never been all that sanguine about the deal’s prospects, considering the skepticism the FTC (at least in the Obama era) has shown against some mega-mergers, including deals involving retailers. Last May, for example, regulators scuttled a proposed $6.3 billion tie-up between rivals Office Depot and Staples, despite Amazon’s entry into the office supplies retail and business contracts spaces.

Walgreens Store Counts By State

What locations are likely to be affected by the acquisition moves? The inventory of saleable Walgreens stores roughly matches population distribution by state, even though Florida tops the list with 831 stores, followed by Texas (713) California (633), and Illinois (598).  The chain claims that 75% of the US population lives within five miles of a Walgreens.

(Photo credit: Wikipedia)

Rite-Aid Merger: Walgreens Likely To Sell More Than 500 Stores

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.

From AP:

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”.