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Walgreens’s Deal with Rite Aid Still on, but Delayed

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Nov. 20 2020, Updated 4:36 p.m. ET

Walgreens’s deal with Rite Aid

In October 2015, Walgreens Boots Alliance (WBA) announced its intention to acquire Rite Aid (RAD) for a total enterprise value of $17.2 billion.

The merger of Walgreens, the second-largest chain, with Rite Aid, the third-largest chain, would create the biggest drugstore chain in the US. The deal would improve Walgreens’s footprint across the US, increasing its store count by over 50%.

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Current status of the deal

The U.S. Federal Trade Commission (FTC) is currently reviewing the transaction and has asked WBA to close or sell around 5%, or 650, of the Walgreens-Rite Aid combined store count. The company has been looking for potential buyers but hasn’t succeeded yet.

The New York Post recently reported that private equity firms are wary about purchasing WBA’s stores due to their poor locations. It also reported that Walgreens and CVS Health (CVS) have met with FTC officials recently, probably regarding CVS’s interest in WBA stores. However, nothing has been confirmed.

Kroger (KR), the largest supermarket chain in the US with more than 2,000 pharmacies, is reported to have shown interest in purchasing these stores. However, the grocery chain might also not be able to make the purchase. As per the New York Post, the FTC has reportedly told Kroger that “the 650 stores couldn’t be purchased and closed, with the operations moved inside the grocery stores.”

As a result, Rite Aid and Walgreens have mutually extended the last date of their merger agreement to January 27, 2017, from October 27, 2016. As per the terms of the merger agreement, either of the two parties could extend the date of the agreement to January 27, 2017. Walgreens is now aiming to sell off stores by the end of 2016.

ETF exposure

ETF investors seeking to add exposure to WBA can consider the iShares US Consumer Services ETF (IYC). IYC invests 2.4% of its portfolio in WBA. Read the next part of the series to know about the Walgreens’s investor returns.

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