Walgreens-Rite Aid Merger Off the Table. Walgreens to Instead Purchase 2200 Rite Aid Stores
Given concerns with anti-trust issues, Rite Aid and
Walgreens have decided to call of their merger. Walgreens is expected to buy
2,200 Rite Aid stores instead, keeping in mind a muscular and expansionist
Amazon which is said to be looking into entering the pharmacy chain market.
As of 30th
June 2017, American pharmacy giant Walgreens has officially ended merger talks
with rival Rite Aid in what was supposed to be a $9.4 billion deal. Instead
Walgreens is now looking to buy around half of Rite Aid’s stores, nearly 2,200
of them, for an estimated $5.1 billion. Experts suggest that the merger was
planned keeping in mind the entry of large companies such as Amazon into the
pharmacy market, though neither side has confirmed or denied the claim. The
deal, before it was scuppered, had been over two years in the making, with an
initial $17.2 billion merger planned in October 2015. The initial deal would
have seen the second and third largest pharmacy chains combine over 13,000
stores together to overtake CVS, who at that point had around 7,800 stores.
Walgreens Boots
Alliance, Inc, colloquially called Walgreens, is the second largest pharmacy
store chain in the United States, behind CVS. The company marks its presence in
all 50 states in the US, and has over 8,100 stores in the country. Pharmacy is
one of the markets that is growing at a strong rate in the United States;
Walgreens alone earned approximately $30.1 billion in the last fiscal, beating
investor expectations. This is not the first major acquisition Walgreens has
completed in the recent, past. Walgreens purchased a 55% stake in Alliance
Boots, a multinational pharmacy led group on 31st December 2014,
after having already purchased 45% stake previously for $6.7 billion. The deal
was estimated to cost $15.3 billion. Rite Aid is a Fortune 500 company headquarters
in Pennsylvania. It had a revenue of around $30.7 billion in FY2016 and
employed around 89,000 people during the same time period. Rite Aid is the
third largest drugstore chain behind CVS and Walgreens, with over 4,600 stores
in the United States (as of June 2017).
Experts at TechSci
Research have said that Walgreens has been hugely successful in its M&A
strategy as was previously seen with the Boots Alliance merger. The
Walgreens-Boots combine has a presence in 25 countries, where Walgreens looks
after the US operations and Boots after the international markets. The company
saw a 35% increase in net sales in FY15, to $103.4 billion which grew to
$117.35 billion in FY16. TechSci Research experts, however have suggested that
a successful M&A strategy is not only for capturing of market share,
reducing competition and streamlining supply chain logistics, but it is also keeping
in mind a potential Amazon entry into the pharmacy retail-chain market. Given
Amazon’s aggressive recent positioning in the overall retail markets (with the
acquisition of Whole Foods etc.), it may be sensible for pharmacy companies of this
sort to consolidate to compete, has a diverse and highly fractured market would
be a lot easier to take over. TechSci experts estimate that the buying up of
Rite Aid stores will lead to around $400 million in savings for Walgreens, but
more importantly, it may also provide a significant buffer against Amazon
expansion at least in the short run.
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