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Where Does Walgreens’s Deal with Rite Aid Stand a Year Later?

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Walgreens’s deal with Rite Aid

In October 2015, Walgreens Boots Alliance (WBA) announced its plans to acquire Rite Aid (RAD) for a total enterprise value of $17.2 billion, including acquired net debt of $9.3 billion.

Walgreens agreed to pay $9.00 per share in cash to Rite Aid shareholders, which was a premium of 48% to the closing share price on the day before the announcement of the deal. Once the deal is closed, Rite Aid will operate as a wholly owned subsidiary of Walgreens.

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Status of the deal

The deal, which unites two of the three biggest drugstore owners in the US, is currently awaiting the Federal Trade Commission’s (or FTC) approval. The FTC has asked Walgreens to close or sell around 650 stores, which is about 5% of the WBA-RAD combined store count.

Therefore, WBA is looking for a buyer, either a private equity firm or a suitable strategic buyer. Private equity firms have been shying away from purchasing the stores offered for divestiture due to concerns over location quality.

News of Kroger’s (KR) and CVS Health’s (CVS) interest in the stores has also surfaced, but nothing has materialized yet. Read the next section for details on buyers’ interests in WBA-RAD stores. Due to its inability to find a suitable buyer, Walgreens was forced to delay the deal closure deadline from October 2016 to January 2017.

Comparing the three biggest drug store chains in the US

Walgreens Boots Alliance is the second largest pharmacy retail chain in the US in terms of market cap and sales. The company has trailing-12-month (or TTM) sales of $117.3 billion. CVS Health is the largest pharmacy chain and has TTM sales of $166.7 billion. Rite Aid is the third largest and has TTM sales of $32.6 billion.

Investors who want exposure to Walgreens, CVS, and Rite Aid can invest in the SPDR S&P Retail ETF (XRT). XRT invests 3.2% of its portfolio in the three drug store chains.

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