Walgreens to buy smaller drugstore rival Rite-Aid

Oct 28, 2015, 12:40 AM EDT
Customers walk toward a Walgreens store in Boston in 2014.
AFP/Getty Images

Drugstore chain Walgreens Boots Alliance Inc said on Tuesday it would acquire smaller peer Rite Aid Corp for $9.4 billion to widen its footprint in the United States and negotiate for lower drug costs, writes Reuters.

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 Stores Inc to online pharmacies.

The price represents a 48 percent premium to where Rite-Aid shares closed on Monday, the day before the agreement was signed, the companies said in a joint release. 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.

Shares of Rite Aid, which had a market value of $6.36 billion at Monday's close, rose as much as 44 percent on Tuesday after the Wall Street Journal first reported the deal talks.

Walgreens stock rose as much as 7 percent. Walgreens said it expects the transaction to close in the second half of 2016 and to boost its earnings per share in the first full year after its completion.

Moreover, it 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 beef up and bargain for lower prices from drugmakers.

In part, that is because President Barack Obama’s national healthcare reform law seeks to limit spending by cutting payments in government insurance programs. Large companies that provide health benefits have also tightened their spending.