Following a trend of food industry "megadeals," mergers in which two industry giants will become one, Walgreens and Rite Aid entered into a definitive agreement in October 2015, in which Walgreens Boots Alliance agreed to acquire all outstanding shares of Rite Aid. Much like other deals of this size, the two companies were expected to be required to divest some of their locations to avoid antitrust objections. If completed, the merger of the two companies will create the nation's largest drug store chain.
Kroger was expected to acquire 650 stores from the two chains to satisfy antitrust authorities, however, it now seems like the grocery store may be reconsidering its plan. Sources told The New York Post Kroger may not buy the stores because the FTC told it the stores could not be purchased and closed, with the operations moved inside its grocery stores. Kroger met with hedge funds earlier in October to determine how best to expand the chain, and one manager was under the impression that Rite Aid is only one option being considered by the company.
Now, traders see only an 18% likelihood that the merger between Walgreens and Rite Aid will close at all, reported Business Insider. Capital Forum also believes the FTC is likely to find the divestiture package insufficient, with the regulator's concerns related specifically to the pharmacy benefit management.
Despite this news, Walgreens and Rite are still chugging along with the merger. The two companies did agree to extend the date of their merger agreement from October 27, 2016 to January 27, 2017, but they do expect the transaction to close in early calendar 2017.
Other analysts remain positive that the merger will be completed. BNL Finance believes the likelihood of a finalized deal is still upwards of 80%. It notes that if FTC did plan to block the merger, "Walgreens would have a good indication by now." It adds "there is no reason to believe the merger will get blocked," because of Walgreens’s continued communication with the FTC and its previous approval of the CVS/Target pharmacy acquisition.
We are still a few months away from a completed deal, but be sure to keep an eye on this developing story as it plays out here in the Food Institute blog.
Jennette has been with The Food Institute since 2013. As Marketing Director, she is responsible for promoting all Food Institute books, seminars and webinars, as well as writing and editing the Food Institute’s annual publications. Additionally, she writes for and edits the daily news update, Today in Food, and contributes to the weekly Food Institute Report. She has a background in non-profit and environmental marketing, programming and writing, and graduated from Rowan University in 2012 with a degree in Communication Studies.
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