Walgreens To Buy Rite Aid For $9.4 Billion
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Walgreens Boots Alliance has agreed to acquire Rite Aid for more than $9.4 billion in cash, uniting two of the country’s biggest drugstore chains.
Under the terms of the deal announced on Tuesday, Rite Aid shareholders will receive $9 a share — a premium of 48 percent to its closing stock price on Monday. Including the assumption of net debt, the deal gives Rite Aid a total enterprise value of $17.2 billion.
“Today’s announcement is another step in Walgreens Boots Alliance’s global development and continues our profitable growth strategy” Stefano Pessina, the chief executive of Walgreens, said in a statement.
A combination of Walgreens and Rite Aid would create a new pharmacy giant with heightened influence with drug makers, pharmacy benefit managers and others in the health care industry.
Sweeping changes to health care under the Affordable Care Act and the rise in insured Americans has increased prescription demand, helping increase the total revenue of the nation’s retail, mail and specialty pharmacies 7 percent last year from 2013.
At the same time, companies have also been pressured to keep costs down.
Rite Aid will be a wholly owned subsidiary of Walgreens operating under its own brand name when the deal is completed.
Several waves of consolidation have reshaped the pharmacy industry. Since 2010, Walgreens has acquired Duane Reade, USA Drugs and Kerr Drug, helping it grow to more than 8,200 stores and revenue of $76 billion last year.
Last year, Walgreens struck a complicated deal to buy Alliance Boots, a British pharmacy chain, to gain a foothold in Europe. Buying Rite Aid would give it an additional 4,600 stores in 31 states, adding to its roughly 8,200 locations across the country, Puerto Rico and the ? Islands.
The biggest drugstore chain, CVS Health, has also grown, acquiring Longs Drug, Medicine Chest and Navarro Discount Pharmacy, and now runs more than 7,800 stores.
With years of steep losses, Rite Aid, which itself acquired the Brooks and Eckerd pharmacy chains in 2007, has fallen to a distant third.
“The pharmacy consolidation endgame has begun,” said Adam J. Fein, president of Pembroke Consulting, a firm based in Philadelphia that specializes in the pharmaceutical industry. ”Rite Aid was one of the last remaining pharmacy assets available for purchase,” he said.
“Even with its debt, Rite Aid could have survived into the future. But this combination will give the new business a lot more scale,” he said. “The combined entity will have a lot more power against pharmacy benefit managers and other payers. They will be able to negotiate higher reimbursements for prescriptions.”
Shares of Rite Aid jumped after The Wall Street Journal reported the talks, closing up nearly 43 percent, at $8.67.
Walgreens expects to finance the transaction through a combination of existing cash, assumption of existing Rite Aid debt and issuance of new debt.
Citigroup advised Rite Aid. Skadden, Arps, Slate, Meagher & Flom was legal counsel on transaction legal matters and Jones Day was its legal counsel on antitrust regulatory matters.
UBS advised Walgreens and will be the sole arranger on the bridge financing.
Simpson Thacher & Bartlett acted legal counsel to Walgreens on transaction legal matters and Weil, Gotshal & Manges acted as its legal counsel on antitrust regulatory matters.
Comments
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It was just a matter of time....
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Damn thats a boss move.
