Walgreens had entered into an agreement to acquire Rite aid in October 2015. The agreement was stalled while both companies waited for approval from the Federal Trade Commission (FTC). In December 2016, divestiture of many Rite Aid locations to Fred’s, Inc was announced. This was intended as an appeasement in order to get the FTC’s approval.
Walgreens and Rite Aid made the decision to scrap the merger after receiving feedback from the FTC leading them to believe the merger was not going to be approved. They have announced a new agreement, Walgreens will purchase 2,186 stores, three distribution centers, and related inventory from Rite Aid. Rite Aid will receive $5.175 billion in cash for the stores, a $325 million termination fee, and the ability to purchase generic drugs from a Walgreens affiliate at cost for the next 10 years. The proceeds from the sale and termination fee will be used by Rite Aid to reduce debt and improve financial flexibility.
This new deal will alter the pharmacy industry moving forward. Under the new purchase agreement, Walgreens is going to be acquiring slightly less than half of all Rite Aids locations. These locations will be across the Northeast, Mid-Atlantic, and Southeast. This addition will help Walgreens compete with CVS for the top spot in the pharmacy world. The sale will also push Rite Aid further behind, into a stable number three spot. Fred’s, Inc., which was hoping to expand, will have to look into other ways to grow its business.