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Retail

Here’s Why Walgreens’ $9.4 Billion Deal to Buy Rite Aid Is in Jeopardy

Phil Wahba
By
Phil Wahba
Phil Wahba
Senior Writer
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Phil Wahba
By
Phil Wahba
Phil Wahba
Senior Writer
Down Arrow Button Icon
October 19, 2016, 12:45 PM ET
A Rite Aid Corp. Store As  Earnings Figures Are Released
Vehicles sit parked outside of a Rite Aid Corp. store in Akron, Ohio, U.S., on Thursday, April 7, 2016. Rite Aide Corp., the third-largest U.S. pharmacy chain, is entering a growth phase via a combination of organic expansion and the acquisition of pharmacy benefit manager EnvisionRx. Photographer: Luke Sharrett/Bloomberg via Getty ImagesLuke Sharrett — Bloomberg via Getty Images
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Looks like Walgreens Boots Alliance’s (WHA) plan to buy smaller drugstore rival Rite Aid (RAD) for $9.4 billion has hit a significant snag.

Rite Aid’s shares plunged 5% on Wednesday on a New York Post report that Kroger (KR) was no longer interested in buying 650 of the Rite Aid or Walgreens stores Walgreens Boots Alliance plans to sell to placate U.S. anti-trust regulators. Kroger was one of the few potential buyers for such stores.

Separately, Reuters reported that the FTC had told Kroger that it would not be allowed to close Rite Aid stores that are near Kroger locations, a problematic set up for Kroger given the overlap both chains have. That could have led to Kroger’s decision to call off the purchases. Other media outlets have reported that the FTC has found Walgreens’ divestiture plan wanting.

On Wednesday afternoon, Rite Aid shares were trading at $6.70, far below the $9 per share price Walgreens offered a year ago, suggesting there is growing doubt the deal will go through.

Kroger declined to comment to Fortune, while a Walgreens representative referred us back to comments last month by the company stating it continued to expect the acquisition to close in the second half of this year.

Last month, Walgreens said it would likely have to divest between 500 and 1,000 stores, more than its previous estimate of 500 locations, to win the FTC’s approval for its planned acquisition of Rite Aid. Walgreens operates roughly 8,200 stores and competes most directly with CVS Health (CVS). Rite Aid, the No. 3 U.S. drugstore chain has about 5,000 stores.

The FTC has pushed back at a number of mega-deals of late, notably scuttling Staples’ (SPLS) $5.5 billion plan this year to buy office supplies rival Office Depot. (ODP)

A year ago, Walgreens announced the all-cash deal, one that would create a 13,000 store behemoth and one it claimed would give it clout with drugmakers to lower drug costs.

 

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Phil Wahba
By Phil WahbaSenior Writer
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Phil Wahba is a senior writer at Fortune primarily focused on leadership coverage, with a prior focus on retail.

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