Walgreens confirms it will buy Rite Aid for $9.41 billion

Shares of Rite Aid surged more than 40 percent on a report Tuesday that it may be bought by Walgreens. Rite Aid revenue for its February ending fiscal year was $26.5 billion, while Walgreens revenue for the year ending August 2014 was $76.4 billion. That reflects a 48% premium above Rite Aid’s value at the close of trading Monday.

U.S. drugstore chain Walgreens Boots Alliance announced on Tuesday it would take over rival Rite Aid to strengthen its position as the country’s second-largest pharmacy network. US-based Walgreen’s completed its acquisition of British company Boots at the end of 2014. Additionally, Walgreens Boots Alliance expects to realize synergies in excess of $1 billion.

Still, Rite Aid stock is very cheap, and for this reason it might be in high demand now that WBA is reportedly close to an acquisition. That increased its valuation from 11 to 13 times Ebitda, which is still slightly lower than what Bloomberg calculates Walgreens paid a year ago for Alliance Boots, a European operator of pharmacy and beauty stores.

Rite Aid, based in Camp Hill, Pennsylvania, has about 4,600 drugstores in 31 states.

However, a combined Walgreens and Rite Aid would actually be more profitable than CVS.

Will a deal go through?Antitrust regulators will have to approve a merger between Walgreens and Rite Aid, and there will be obvious obstacles.

Walgreens Boots is scheduled to report fourth-quarter earnings on Wednesday morning.

What does seem likely at this point is that if Walgreens and Rite Aid were to combine, the two companies would have to work together in order to divest a few of their total assets. This is yet another thump in a steady drumbeat of healthcare M&As, many of which have involved major payers and pharmacies, including UnitedHealth’s .8 billion proposed deal for pharmacy benefits giant Catamaran.