NEW BRUNSWICK, NJ—Two of the three largest drugstore chains in the country will soon join forces, if a $9.4 billion deal for Walgreens to buy Rite Aid is approved.
The Rite Aid store, located at 366 George Street, is just one of more than 4,600 locations in the nation's third largest U.S. drugstore chain.
If the deals moves forward, it will become part of the Walgreens chain, which has a location at 20 Jersey Avenue in New Brunswick. Walgreens is the number one U.S. drugstore chain with 8,200 stores.
According to a Reuters report, the deal will improve Walgreens ability to negotiate for low drug prices and fend off rivals like CVS and online pharmacies.
Walgreens agreed to the $9.4 billion deal on Tuesday October 27; however, it is sure to attract attention from the Federal Trade Commission (FTC) because it will form such an enormous drugstore chain. Should the FTC determine that the merger will create unfair negotiating power with pharmacy-benefits managers, then the transaction could be blocked before it is finalized.
Walgreens total sales hit $76.4 billion for the 12 months ending in August of last year, while Rite Aid made $26.5 billion for the fiscal year ending in February.
CVS, the second largest drugstore chain in the country, made $139.4 billion in sales last year.
The companies expect the acquisition to go through in 2016, and for Rite Aid stores to initially operate under their existing brand name before they are further transformed "to better meet consumer needs.”
There will be several benefits to consumers, according to Rite Aid. The combination will create more affordable, quality healthcare across the country and improve consumer “access to pharmacy-led health and well being,” Rite Aid Corp. said in a press release.
Rite Aid added that the retail healthcare environment is still evolving and continues to be highly personalized, while Walgreens Boots Alliance, the parent company for all Walgreens stores, says the merger fits into their "profitable growth strategy."
"Today's announcement is another step in Walgreens Boots Alliance's global development and continues our profitable growth strategy," said Walgreens Boots Alliance Chief Executive Officer, Stefano Pessina, an Italian billionaire who built a family business into a mega health giant by making deals to purchase other companies.
"In both mature and newer markets across the world, our approach is to advance and broaden the delivery of retail health, well being and beauty products and services."
“The deal between pharmacy chains adds to a blockbuster year for health-care mergers and acquisitions,” reads a Wall Street Journal Report. "Drug makers, hospital chains, health insurers and others have already struck some $520 billion of mergers this year, according to Dealogic, as the Affordable Care Act and other developments pressure companies to bulk up, increase leverage with suppliers and lower costs."
"Our complementary retail pharmacy footprints in the U.S. will create an even better network, with more health and wellness solutions available in stores and online," said Pessina in the release.
According to a statement, Walgreens Boots Alliance will provide Rite Aid "its global expertise and resources to accelerate the delivery of integrated frontline care, and to offer innovative solutions for providers, payers and other entities in the U.S. healthcare system."
Rite Aid Chief Executive Officer, John Standley, said: "Joining together with Walgreens Boots Alliance will enhance our ability to meet the health and wellness needs of Rite Aid's customers while also delivering significant value to our shareholders."
Rite Aid shareholders will receive a whopping $9.00 per share in cash if the deal is approved. This represents a 48% premium over the closing price on October 26.
Shares of Rite Aid rose as much as 44% after the Wall Street Journal first reported the potential purchase.