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Walgreens-Rite Aid Deal: The Latest Twist

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Walgreens-Rite Aid Deal: The Latest Twist PART 1 OF 2

Walgreens Will Purchase 2,186 Rite Aid Stores

Walgreens and Rite Aid sign a new deal

On June 29, 2017, Walgreens Boots Alliance (WBA) and Rite Aid (RAD) announced a new definitive agreement. Walgreens will purchase 2,186 Rite Aid stores, its three distribution centers, and related inventory. The deal is valued at $5.18 billion, which Walgreens will pay in cash. Walgreens will also assume real estate leases as well as certain store-related liabilities.

As part of the deal, Rite Aid will also be granted an option to become a member of Walgreens Boots Alliance Development GmbH—Walgreens’ group purchasing organization. Rite Aid can exercise the option through May 2019. Walgreens will pay a termination fee of $325 million to Rite Aid.

Walgreens Will Purchase 2,186 Rite Aid Stores

New agreement replaces all other agreements

The new agreement replaces the original agreement announced in October 2015 and the revised agreement signed in January 2017, under which Walgreens had agreed to purchase Rite Aid’s 4,600 drugstores. The original transaction was valued at $17.2 billion, while the revised deal value was ~$14 billion.

The current deal also terminates the agreement with Fred’s (FRED), announced in December 2016, to divest certain Rite Aid stores.

“This new transaction extends our growth strategy and offers additional operational and financial benefits,” said Walgreens Boots Alliance’s Executive Vice Chairman and CEO Stefano Pessina.

ETF investors seeking to add exposure to Walgreens, Rite Aid, and Fred’s can consider the SPDR S&P Retail ETF (XRT). XRT invests ~3% of its portfolio in the three companies.

Walgreens and Rite Aid

Walgreens Boots Alliance is the second-largest pharmacy retail chain in the US in terms of sales and market cap. The company clocked trailing 12-month sales of $116 billion. CVS Health is the largest pharmacy chain with trailing 12-month sales of $179 billion. Rite Aid is the third-largest pharmacy chain with trailing 12-month sales of $32.8 billion.

In the next part, we’ll discuss the deal in more detail.

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