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Walgreens–Rite Aid Deal Finally Gets FTC Nod

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Part 2
Walgreens–Rite Aid Deal Finally Gets FTC Nod PART 2 OF 3

Rite Aid Loses 12% after the FTC Nod for Walgreens Deal

Rite Aid’s stock price slides after the news

The stock price for Rite Aid (RAD) plunged more than 12% after the announcement of the deal closure with Walgreens on September 19. While the closure ended the long wait for Rite Aid shareholders, analysts think the deal moved in Walgreens’ (WBA) favor after each tweak.

Rite Aid Loses 12% after the FTC Nod for Walgreens Deal

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“With this process taking close to two years to come to a conclusion, we think the final outcome and the structure of the transaction were well anticipated,” said an analyst at Pivotal Research Group to CNBC. “However, with each recent iteration of the transaction, the economics appear to be shifting more and more in Walgreens’ favor.”

Walgreens’ shares also closed 1.7% lower on Tuesday. The company is trading at $81.21 and has lost close to 2% YTD (year-to-date).

Rite Aid is currently  $2.40, more than 265% below its 52-week high price. The company has lost 71% YTD.

Brokerage firm RBC cut its target prices on both companies. It reduced Walgreens’s price target to $94 from $96 and Rite Aid’s price target to $2.0 from $2.5.

Discussing the tweaks

Walgreens had initially proposed to acquire Rite Aid for $17.2 billion or $9 per share in October 2015. Failing to get FTC approval on concerns of diminishing competition, it proposed to sell 1,200 Rite Aid locations to Fred’s (FRED) and lowered the deal value by around $2 billion. In June, the two companies mutually terminated that agreement, and Walgreens proposed to purchase 2,186 stores. The company finally settled with 254 fewer stores yesterday and agreed to pay $4375 million for the transaction. 

ETF investors seeking to add exposure to WBA or RAD can consider the SPDR S&P Retail ETF (XRT), which invests 2.5% of its combined portfolio in the two companies.

See the next part of this series to learn about the key benefits from the deal for both parties.

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