Two out of the three biggest drug store companies in the US are set to join forces following Walgreens Boots Alliance acquisition of Rite Aid.
The deal, thought to be in the region of $9.4 billion, will see the two powerhouses come together to further dominate the US drug store market amidst talk of the industry looking for ways to bulk up. However, it is said that the deal may bring disapproval from antitrust regulators who could possibly look unfavourably at the market shrinking to only a few companies and may look to demand divestitures in order to give approval.
Chief Executive Officer Stefano Pessino said in a statement, “Today’s announcement is another step in Walgreens Boots Alliance’s global development and continues our profitable growth strategy.”
The terms of the deal included Walgreen agreeing to pay $9 a share in cash for Rite Aid; a 48 percent premium on its share price closing Monday. Shares for both the companies rose on Tuesday following news of the merger breaking, with Rite Aid rising to $8.67 – a 43 percent increase – and Walgreen booting to $95.16, an increase of 6.4 percent.
It’s clear that Walgreens isn’t afraid to bolster and grow; speaking during a conference call in July Pessino stated, “We can clearly see the need or the opportunity for horizontal and vertical consolidation in our industry.”
The deal takes place under the Affordable Care act, which has seen many drug makers, insurers and others combine. The deal would see another 4,600 stores added to Wallgreen’s already extensive portfolio of 8,200 locations across the country, in Puerto Rico and the Virgin Islands.
It isn’t just Walgreens that has taken move to grow its brand. The market leader, CVS, has also been on the acquisition trail, purchasing Long’s Drug, Medicine Chest and Navarro Discount Pharmacy, and now has more than 7,800 stores.
The move comes amidst a year of significant losses for Rite Aid, which is a distant third in the top spots against Walgreens and CVS.