Drugstore chain Walgreens Boots Alliance has ended its proposed takeover of Rite Aid after clashing with antitrust regulators. It will instead acquire almost half of the latter’s U.S. stores for $5.18 billion in cash.
Walgreens also canceled a related deal to sell 865 Rite Aid stores to a third pharmacy chain, Fred’s. As a result, Walgreens will pay Rite Aid Corp. a $325 million termination fee as well as a $25 million fee to Fred’s.
The Walgreens-Rite Aid deal, first announced in 2015, was valued at about $9.4 billion and would have resulted in a total of 12,700 stores.
If approved, the new deal would result in Walgreens buying 2,186 of Rite Aid’s 4,621 stores and distribution centers in Dayville, Connecticut, Philadelphia and Spartanburg, South Carolina. Rite Aid will have an option, exercisable through May 2019, to become a member of Walgreen’s group purchasing organization.
The new deal would still create the nation’s largest drugstore chain, with about 10,386 stores to second-place CVS Health’s 9,600. Walgreens said it expected the deal to generate savings of more than $400 million.
“We believe this new transaction addresses competitive concerns previously raised with respect to the prior transaction,” Walgreens CEO Stefano Pessina said. “It will allow us to expand and optimize our retail pharmacy network in key markets in the U.S.”
The company, headquartered in Chicago, said the new transaction is targeted to close within the next six months.
Rite Aid, headquartered in East Pennsboro Township, Pennsylvania, said it expects to use a majority of the net proceeds from the transaction to repay existing indebtedness. Following the transaction’s completion, it said it would continue to operate EnvisionRx, its pharmacy benefit manager, RediClinic and Health Dialog subsidiaries in “key communities.”
“While we believe that pursuing the merger with (Walgreens) was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets,” Rite Aid CEO John Standley said.
“The transaction offers clear solutions to assist us in addressing our pharmacy margin challenges and allows us to significantly reduce debt, resulting in a strong balance sheet and improved financial flexibility moving forward,” Standley said.
Which Rite Aid stores would be affected has yet to be determined. The chain operates several stores in the area, including in Bethel, Bridgeport, Brookfield, Danbury, Monroe, Norwalk, Ridgefield, Stamford, and Stratford in Fairfield County, and in Ardsley, Chappaqua, Hartsdale, Mount Vernon and Yonkers in Westchester.