Walgreens Boots Alliance Inc. agreed to acquire Rite Aid Corp. for $9.42 billion in cash in a transaction to further expand the company’s role in the distribution of medications in the U.S.
The transaction will add to Walgreens’ earnings after the deal has been complete for a full year, the companies said Tuesday in a statement. Including debt, the deal is valued at $17.2 billion, they said.
Walgreens said it will pay $9 per share for Camp Hill, Pa.-based Rite Aid. That’s a premium of 48 percent to the closing price of Rite Aid on Monday.
Deerfield, Ill.-based Walgreens is the largest U.S. drugstore chain, based on store counts. Rite Aid is the third largest.
The deal expected to close in the second half of next year.
Putting the drugstore networks together — which together include some 13,000 stores — could yield cost savings at a time when the companies have been beset by drug-cost inflation, the Wall Street Journal reported. Other benefits could be derived from marrying Walgreens’ wholesale operation with Rite Aid and Rite Aid’s prescription-processing operation with Walgreens.
Both companies have big store counts in states like Michigan, California, New York and Massachusetts, where the stores are often in close proximity, while in others like Florida, Texas and Illinois, there is no overlap, the Wall Street Journal said. There were no details on potential closing of stores.
Rite Aid shares fell 6.3 percent to $8.12 in extended trading after the deal was announced, reflecting speculation that the deal will face antitrust scrutiny. They had risen as high as $8.74 earlier after the Wall Street Journal reported the companies were close to a deal. The stock had slumped 29 percent since Sept. 16 after the company lowered profit and revenue forecasts for the year, giving Walgreens a potential opportunity to make an offer.
Speculation that Walgreens would pursue Rite Aid rose to a crescendo in March after billionaire Stefano Pessina, who took over in January as interim chief executive officer at Walgreens after it acquired Alliance Boots, said he envisioned doing his next big deal in the U.S.
In addition to expanding its drugstore locations, the Rite Aid deal gives Walgreens its first foray into the business of managing drug benefits for insurers and employers, an area where rival CVS Health Corp. is a leader. Rite Aid entered that business by acquiring Envision Pharmaceutical Services Inc. for about $2 billion this year.
Shares of drug distributor McKesson Corp. dropped 4.2 percent, while AmerisourceBergen Corp.,Walgreens’ distribution partner for medications, jumped 4.2 percent. Rite Aid represents about $18 billion of McKesson’s revenue, according to Evercore ISI.
While Pessina had made clear his appetite for deals, he had been cagey about what kind of acquisition he might pursue. He has said only that the company wanted to participate in what he saw as the inevitable consolidation of the long distribution chain that delivers drugs from manufacturers to patients in the U.S.
Walgreens already has a foothold in the drug-distribution business after it signed a 10-year agreement with AmerisourceBergen in 2013 and became the company’s third-largest shareholder.
Today’s Walgreens was built by acquisition. Pessina developed Bern, Switzerland-based Alliance Boots GmbH into a powerhouse through more than three decades of mergers before selling it to Walgreen Co. last year. He’s now the company’s largest shareholder with a 13 percent stake.
Walgreens is scheduled to report fiscal fourth-quarter results Wednesday morning.