Walgreens Boots Alliance and Rite Aid have ended their plans to merge after the Federal Trade Commission said it would likely block the deal to combine two of the five largest retail pharmacy chains.
Instead, in a $5.17 billion agreement, Walgreens said it would buy 2,186 Rite Aid stores, three distribution centers and related inventory.
Walgreens Boots Alliance will pay Rite Aid a $325 million termination fee on their merger agreement announced in October 2015, that would have also divested certain Rite Aid stores to Fred's, Inc.
[Also: Rite Aid, Walgreens to sell 865 stores to Fred's Pharmacy]
The initial closing of the new transaction is expected to occur within the next six months. Walgreens Boots Alliance will then begin to convert the acquired stores to the Walgreens brand over time.
This will allow Walgreens Boots Alliance to expand its retail pharmacy network in key markets such as the Northeast, according to Executive Vice Chairman and CEO Stefano Pessina.
Walgreens said it expects to realize $400 million in efficiencies from cost savings, procurement and other operations within three to four years of the closing.
"This new transaction extends our growth strategy and offers additional operational and financial benefits," Pessina said. "We believe this new transaction addresses competitive concerns previously raised with respect to the prior transaction and will streamline and simplify the transition for customers, team members and other stakeholders."
Ted Lipsky, acting director of the FTC's Bureau of Competition, said, the FTC would review the proposed new transaction.
"The commission staff thoroughly investigated the potential impact that the proposed Walgreens/Rite Aid merger may have had on competition and evaluated a number of divestiture proposals put forward by the parties," Lipsky said. "Before the time the companies would have been free to close their transaction absent commission action, they voluntarily withdrew their HSR filings..."
CVS Health is the nation's largest retail pharmacist, followed by Walgreens, Express Scripts, Walmart and Rite Aid, according to Pharmacy Times.
http://www.pharmacytimes.com/news/5-most-lucrative-retail-pharmacies-in-...
Two other healthcare mergers between four of the top five insurers was recently shot down over antitrust concerns. The Department of Justice blocked the $37 billion health insurance merger between Aetna and Humana, and another $54 billion deal for Anthem to buy Cigna. With UnitedHealth, the insurers rank among the five largest insurers in the nation.
[Also: Healthcare mergers will continue to surge thanks to benefits of integration, CEO predicts]
Rite Aid Chairman and CEO John Standley said the merger with Walgreens offered a clear solution to address pharmacy margin challenges and significantly reduce debt.
"While we believe that pursuing the merger with WBA was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets," Standley said.
Twitter: @SusanJMorse