Walgreens nears deal to buy Rite Aid

The deal values Rite Aid at $17.2 billion including debt – a 48% premium on Rite Aid’s approximate $6 billion value at the close of the markets on Monday.

In addition to expanding its drugstore locations, the Rite Aid deal gives Walgreens its first foray into the business of managing drug benefits for insurers and employers, an area where rival CVS Health Corp.is a leader. “This combination will further strengthen our commitment to making quality healthcare accessible to more customers and patients”. Walgreens Boots Alliance will provide to Rite Aid its global expertise and resources to accelerate the delivery of integrated frontline care, and to offer innovative solutions for providers, payers and other entities in the US healthcare system. “Finally, this combination will generate a stronger base for sustainable growth and investment into Rite Aid stores, while realizing synergies over time”.

The deal would consolidate the second and third largest drugstore chains in the U.S. “Other benefits could be derived from marrying Walgreens’ wholesale operation with Rite Aid”. The boards of both firms have already approved the deal, but it will still be subject to regulatory approval and a vote by Rite Aid shareholders.

Notably, Rite Aid will become a Walgreens subsidiary under the terms of the deal and “is expected to initially operate under its existing brand name”.

Adding Rite Aid’s 4,600 stores could help Walgreens lower price for its customers because its growing volume of prescriptions would put it in a better position in talks with drug providers. Pessina also has said that he was open to any deals that would increase the value of the company. It acquired Boots Alliance, a European pharmacy chain, last year. The merger could likely result in the closure of a few Rite Aid outlets.

Rite Aid doesn’t have any stores in Illinois, but there is a big overlap in states like California, Michigan and New York, which could raise antitrust concerns.