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Will the WBA-RAD Deal Clear FTC Hurdles?

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This is where the deal is stuck

As discussed, Walgreens Boots Alliance (WBA) is looking to divest 650 stores in order to win the Federal Trade Commission’s (FTC) approval for its pending Rite Aid (RAD) acquisition.

Private equity firms haven’t shown interest in purchasing the divested stores on concerns over the quality of location as well as the lack of reasonable quantity to support a profitable operation. This has increased the possibility of a strategic acquisition. Read the next section of this series on Wall Street’s perspective of the deal.

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Who could be potential buyers?

As per a recent report by CTFN, dated November 11, Albertsons and Kroger (KR) might end up buying the stores. The report said, “Albertsons and Kroger are established retail players with experience in pharmacies” and that buying WBA-RAD stores represents “key geographic expansion” for the two companies.

What’s stopping Kroger from the purchase?

Kroger (KR), which currently operates more than 2,000 pharmacies in the US, had shown interest in buying these stores and subsequently shifting them into its grocery stores. However, it was reported that FTC told KR that “the 650 stores couldn’t be purchased and closed, with the operations moved inside the grocery stores.”

How about CVS Health?

CVS Health (CVS) was also reported to have shown interest in buying some of the WBA-RAD stores in areas where they don’t compete with existing CVS stores. Purchasing these stores would increase CVS’s footprint in locations where the company doesn’t have a higher market share. However, as per the CTFN report, CVS has already withdrawn its interest.

ETF investors seeking to add exposure to WBA can consider the VanEck Vectors Retail ETF (RTH), which invests 5.1% of its portfolio in WBA.

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