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Rite Aid, Fred’s, and Walgreens Rose Due to Possible Deal Closure

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Rite Aid, Fred’s, and Walgreens

Rite Aid (RAD), Fred’s (FRED), and Walgreens Boots Alliance’s (WBA) stock prices rose on June 26. A report from CTFN indicated that the long-awaited Rite Aid-Walgreens merger might be getting close to a conclusion.

The CTFN report said that the “Federal Trade Commission has ramped up its resources and is not expected to wait the entire” 60-day review period. It also claimed that FTC approval is now “more likely than not.” In fact, the voting might be done this week. The FTC must respond by July 7 on the pending merger.

Rite Aid, Fred’s, and Walgreens closed 30%, 23%, and 1.6% higher yesterday.

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Highs and lows for Rite Aid investors

Rite Aid’s share price rose 30% to a six-week high on June 26. Its stock price has been extremely sensitive to speculations over the last month. On June 9, the company lost 15% after Capital Forum claimed that the FTC might block the deal because it isn’t convinced that Fred’s entry could preserve competition in the pharmacy space.

On June 19, its stock price rose 12% on speculations that Amazon might jump into the drugstore space and try to acquire Rite Aid if the Walgreens deal falls apart.

Rite Aid stock traded at $8.67 on October 27, 2015—the day that Walgreens announced its acquisition of the company. Its current stock price is $4.05—53% below the pre-deal price.

About the deal

Walgreens announced the acquisition of smaller rival Rite Aid exactly 20 months ago. However, the company didn’t get FTC approval. The regulatory authority was concerned about depleting competition and the rise in pricing power in the hands of two pharmacy giants—CVS Health (CVS) and Walgreens.

It approached Fred’s in December 2016 to sell 865 Rite Aid stores in a bid to resolve antitrust problems. Later, the number increased to 1,200.

In January 2017, the agreement was revised. The offer price was reduced to $6.50–$7.00 from $9.00 offered initially.

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 these three companies.

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