Drugstore chain Walgreens Boots Alliance Inc. Announced on Oct. 28 that it would acquire smaller drugstore chain Rite Aid Corp. for $9.4 billion to widen its footprint in the U.S. and negotiate for lower drug costs.
The $9-a-share cash deal, worth $17.2 billion including acquired debt, will increase the footprint of Walgreens, the largest U.S. drugstore chain, by half. It will also improve its ability to negotiate for low drug prices and fend off rivals from Wal-Mart, Amazon.com Inc. and online pharmacies.
A Walgreens-Rite Aid deal would need approval from the U.S. Federal Trade Commission, which studies retail mergers to ensure they comply with antitrust law.
Walgreens said it expects the transaction to close in the second half of 2016 and sees cost savings of more than $1 billion from buying Rite-Aid, which will initially operate under its existing brand name.
The healthcare sector has been consolidating in recent years as providers look to bargain for lower prices from drugmakers.
Analysts said the deal would increase Walgreens’ presence in the Pacific Northwest and make it better able to take on CVS Health Corp., the nation’s largest drug chain in terms of sales.
Antitrust lawyer David Balto, a former FTC official, said the Walgreens-Rite-Aid deal would receive careful scrutiny by U.S. regulators and then probably be approved.
“Drugstore services have evolved substantially in the past several years,” he said, “and the market is becoming robustly competitive, with substantial competition from supermarkets and mass merchants.”
Walgreens has 13,200 stores, approximately 60% of which are in the U.S., and generated $76.4 billion in sales in the year ended on Aug. 31, 2014. Rite Aid, with 4,570 U.S. stores, has annual sales of about $27 billion. CVS had sales of $139.4 billion last year, but only has 7,870 stores, fewer than Walgreens.