UPDATE: Walgreens to snap up Rite Aid at 48% premium, forming drug store giant
UPDATE: On Tuesday evening, Walgreens confirmed the buyout deal for Rite Aid, valuing it at "a total enterprise value of approximately $17.2 billion, including acquired net debt." Walgreens will finance the deal through a combination of cash, takeup of Rite Aid's existing debt, and some new debt.
Walgreens will be paying a 48% premium on Rite Aid's $6.08 per share closing price on Monday, i.e. $9.00 per share in cash for all outstanding Rite Aid shares. The boards of both firms have already approved the deal, but it will still be subject to regulatory approval and a vote by Rite Aid shareholders.
Notably, Rite Aid will become a Walgreens subsidiary under the terms of the deal and "is expected to initially operate under its existing brand name."
"Today’s announcement is another step in Walgreens Boots Alliance’s global development and continues our profitable growth strategy," said Walgreens Boots Alliance CEO Stefano Pessina in a statement. "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."
Walgreens believes it will realize $1 billion in synergies from the deal.
"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," said Rite Aid CEO John Standley.
If approved, the deal will combine two of the largest pharmacy chain giants in America.
- The Wall Street Journal reported on Tuesday that Walgreens Boots Alliance is nearing a deal to purchase Rite Aid Corp, propelling a recent trend in major healthcare and biopharma sector consolidations.
- If the two firms ultimately reach an agreement, expected to be announced on Wednesday according to the WSJ, the proposed buyout would join the second- and third-largest drug store chains in America.
- Rite Aid shares went soaring more than 40% on the news of an imminent deal announcement. The speculation is that Walgreens will offer a 30%-or-more premium for Rite Aid, keeping with the trend set by recent healthcare and biopharma M&As. (UPDATED ABOVE)
The battle between pharmacy giants is about to heat up considerably with this most recent consolidation (if it is ultimately proposed as reported, and if it's approved).
By some metrics, Walgreens is actually the largest drug chain in the U.S., with CVS, Walmart, and Rite Aid right behind. But the landscape changed in the past year as CVS announced a series of proposed deals in 2015 looking to significantly expand its presence.
In May, CVS said it would snap up the nursing home pharmacy Omnicare in a $12.7 billion deal (a 38% premium at the time). That deal was informed by both pharmacies' strong positioning in the Medicare Part D market. Then, the pharmacy giant announced that it would widen its reach by acquiring Target's pharmacies in a $1.9 billion deal that would give it control over another 1,600-plus pharmacies across 47 states (on top of CVS' existing 7,800 stores).
Now, Walgreens is striking back with this reported deal for Rite Aid. This is yet another thump in a steady drumbeat of healthcare M&As, many of which have involved major payers and pharmacies, including UnitedHealth's $12.8 billion proposed deal for pharmacy benefits giant Catamaran.
It's also one of the first major business undertakings for Walgreens CEO Stefano Pessina, who was appointed permanent CEO for the company after an earnings beat in July. As these benefits managers and drug dispensers consolidate, it's likely to turn up pricing pressure on the biopharma industry even more.
Earlier this year, Walgreens announced that it would be shuttering 200 U.S. stores by 2017 in a cost-cutting push that includes streamlining IT operations and restructuring field and corporate operations after its acquisition of Europe's Alliance Boots.