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Walgreens Wins FTC Approval of Downsized Deal to Buy 1,932 Rite Aid Stores

Fourth Attempt is a Charm for Deerfield, IL-Based Walgreens, Which Would Become Nation's Largest Drugstore Chain with More than 10,000 US Stores
September 19, 2017
After again cutting the number of stores and other properties to satisfy regulatory concerns, Walgreens Boots Alliance Inc. (Nasdaq: WBA) received federal regulatory approval to acquire 1,932 Rite Aid Corp. (NYSE: RAD) stores and related assets for $4.38 billion cash.

Deerfield, IL-based Walgreens said early Tuesday it secured clearance for a revised deal under which it will buy 254 fewer Rite Aid stores than under a previous proposal in June which totaled $5.18 billion for 2,186 stores.

The revised proposal in June was also a sharply reduced version of Walgreens' original October 2015 takeover offer of Rite Aid for about $9.4 billion for 4,600 stores, a deal valued at more than $17 billion including debt. The transaction immediately drew scrutiny from antitrust regulators and two subsequent attempts to negotiate downsized deals fell through.

Walgreens next month will begin acquiring the Rite Aid stores, mostly located in the northeast and southern U.S., and complete the purchases in the spring of 2018.

Under the modified agreement negotiated with Camp Hill, PA-based Rite Aid and the Federal Trade Commission, Walgreens will have about 10,000 locations in the U.S., edging past rival CVS Health, which will have 9,600 stores. Rite Aid will retain more than 2,500 stores. The deal also includes three distribution centers in Dayville, CT, Philadelphia, and Spartanburg, SC, and related inventory. The transition of the distribution centers to Walgreens will not begin for at least 12 months, the company said.

"Combining Walgreens' retail pharmacy network with a strong portfolio of Rite Aid locations is expected to help us achieve enhanced, sustainable growth while enabling us to broaden our reach and provide greater access to convenient, affordable care in more local neighborhoods across the United States," said Walgreens Boots Alliance Executive Vice Chairman and CEO Stefano Pessina.

Walgreens expects annual synergies from the new transaction of more than $300 million, which are expected to be fully realized within four years of the initial closing, derived primarily from procurement, cost savings and other operations. The company does not expect the transaction to have a significant impact to its adjusted diluted net earnings per share in its fiscal year ending Aug. 31, 2018.
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