Walgreens stops yearslong attempt to buy Pa.-based Rite Aid

- Walgreens has ended its takeover pursuit of rival Rite Aid following resistance from U.S. regulators and will instead now buy stores, distribution centers and inventory in a new deal.

   The proposed merger, first announced in 2015, was initially for about $9.4 billion but was whittled down to about $6.8 billion earlier this year.
 
   Walgreens Boots Alliance will pay Rite Aid Corp. a $325 million termination fee. It will pay Fred's Pharmacy an additional $25 million following the termination of a related asset deal.
 
   Under the new agreement, Walgreens will buy 2,186 stores, three distribution centers and related inventory from Rite Aid for approximately $5.18 billion.
 

 

"Rite Aid Corporation … announced that it has entered into an asset purchase agreement with Walgreens Boots Alliance, Inc. whereby WBA will acquire 2,186 stores, related distribution assets and inventory from Rite Aid for an all-cash purchase price of $5.175 billion, on a cash-free, debt-free basis. Under the terms of the agreement, Rite Aid has the option to purchase generic drugs that are sourced through an affiliate of WBA at cost, substantially equivalent to Walgreens for a period of 10 years.

"The company also announced the immediate termination of the merger agreement, which was announced on October 27, 2015 and amended on January 29, 2017, under which WBA would have acquired all outstanding shares of Rite Aid. The decision to terminate the merger agreement follows feedback received from the Federal Trade Commission that led the company to believe that the parties would not have obtained FTC clearance to consummate the merger.

"In connection with the termination, WBA has agreed to pay Rite Aid a termination fee in the amount of $325 million in cash. In light of the termination of the merger agreement, the divestiture agreement with Fred's, Inc. was also terminated, effective today.  

"'While we believe that pursuing the merger with WBA was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets,' said Rite Aid Chairman and CEO John Standley. 'The transaction offers clear solutions to assist us in addressing our pharmacy margin challenges and allows us to significantly reduce debt, resulting in a strong balance sheet and improved financial flexibility moving forward.'

"Standley continued, 'I would like to thank our entire Rite Aid team for their extraordinary efforts during this process and their tremendous focus on taking great care of our customers and patients. We have an outstanding team of associates and, with their continued support, we will work together to deliver a great customer experience, improve our business and deliver value to all of our stakeholders.'

"Rite Aid expects to use a substantial majority of the net proceeds from the transaction to repay existing indebtedness, significantly reducing Rite Aid's leverage levels. Rite Aid also expects that the federal tax gain on the sale of the assets will be largely offset by its net operating loss carryforwards, resulting in a minimal cash tax payment on this transaction."

 

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