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Walgreens, Rite Aid, and Fred’s: The Shifting Landscape

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Apr. 10 2017, Updated 9:06 a.m. ET

Walgreens’ CEO positive on WBA-RAD deal

Walgreens Boots Alliance’s (WBA) CEO (chief executive officer), Stefano Pessina, said that he remains positive about the Rite Aid (RAD) deal, which has been waiting for FTC (US Federal Trade Commission) approval for more than a year and a half.

“I am still positive on this deal,” Pessina noted in a talk with analysts during the second quarter conference call. “I believe that we have a strong argument to defend this deal.”

Pessina added the following: “We are doing what we can together with Rite Aid and Fred’s. We are collaborating very well with the FTC and as I said, we are preparing our Fred’s to be ready to 35 compliance if we will decide to do so.”

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More on the deal

Walgreens announced its intention to acquire Rite Aid in October 2015. However, the deal failed to please the FTC initially, as it would move the market share into the hands of two major players—CVS Health (CVS) and Walgreens—and reduce competition.

FTC ordered WBA to sell or close at least 5% of the combined WBA-RAD store count. As a result, the company found a buyer in Fred’s (FRED) and sold 865 (5%) of its stores to the company in December 2016. However, WBA is still awaiting approval.

A commitment to preparation

A recent report from Bloomberg claimed that WBA was working toward preparing a new deal, which would involve selling a larger base of Rite Aid stores to Fred’s. On April 6, 2017, Fred’s confirmed during its earnings call that it would be willing to purchase up to 1,200 Rite Aid stores.

Mike Bloom, Fred’s CEO, stated: “Fred’s Pharmacy remains committed to purchasing additional assets, including up to 1,200 Rite Aid stores to the extent necessary to obtain the FTC’s approval of the transaction.”

Notably, 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.

Now we’ll take a look at Walgreens’ earnings growth in fiscal 2Q17.

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