Walgreens may sell more assets to win Rite Aid nod
Deerfield-based Walgreens is trying to sweeten its proposal to win U.S. antitrust approval to buy rival pharmacy chain Rite Aid, according to people familiar with the talks.
Walgreens is nearing an agreement to sell more assets to Tennessee-based discount chain Fred's - boosting the number of stores and adding distribution centers, software and personnel, according to one of the people.
Walgreens could present the beefed-up package to the U.S. Federal Trade Commission within weeks, the person said, in hopes of satisfying the agency's concerns after an initial proposal fell short. The merger, which would combine the No. 2 and No. 3 in the industry, has also raised concerns among state attorneys general, at least a dozen of whom are scrutinizing the deal, another person familiar with the matter said.
A revised deal would fall on desks of a commission depleted at the upper levels in the transition between administrations. President Donald Trump hasn't yet named a permanent candidate to lead the antitrust body. Other commissioners have left, leaving just two of five seats filled, one by a Democrat and the other by a Republican, who is the acting chairman.
The FTC is under pressure to make sure it doesn't add to two earlier failures after it approved mergers conditioned on asset sales. The agency allowed Albertsons Cos. takeover of Safeway Inc. and Hertz Global Holdings Inc.'s acquisition of Dollar Thrifty Automotive Group Inc. after the companies agreed to spin off some operations to rivals. While those sales were supposed to maintain competition, in both cases the FTC-approved buyers collapsed.
The new package for Fred's will likely include more stores than the 865 that Walgreens initially agreed to sell, according to one of the people, who declined to specify the exact number of outlets or the revised purchase price. Fred's would also get the rights to the Rite Aid brand name for an extended period beyond the 24-month period outlined in the original deal, the person added.
Senior Rite Aid executives could also move over to Fred's, although exactly who and how many is still under discussion, according to the person. Rite Aid said in a March 2 securities filing that some executives may join the smaller retailer "in order to enhance the management team of Fred's and provide continuity."
Spokesmen for Walgreens, Rite Aid, Fred's and the FTC declined to comment.
MLex reported earlier on Walgreens's efforts to improve the remedy package.
Fred's, which operates discount general merchandise stores primarily in the Southeast, is working to get back in the black after losing $7.4 million in the fiscal year ended January 30, 2016, according to the company's most recent figures. Buying the Rite Aid stores would more than double Fred's existing locations. One worry is that Fred's would be taking on more stores than it can successfully manage, according to one of the people.
Fred's Chief Executive Officer Michael Bloom acknowledged the company's poor performance during a Dec. 8 earnings call and emphasized its strategy for returning to profitability, which relies in part on growing pharmacy sales.
In January, Walgreens and Rite Aid extended the timeline to complete the deal to July 31 after failing to satisfy the FTC. The companies cut the value of the deal by at least $2 billion and said they may have to divest as many as 1,200 stores to complete the merger.
Under the new agreement, Walgreens will pay $6.50 to $7 a share for Rite Aid, depending on how many stores are sold, giving the deal a total value of $6.84 billion to $7.37 billion. That's down from $9 a share, or $9.4 billion, announced in 2015.