Report: Walgreens nears deal to buy Rite Aid

AP News
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Posted: Oct 27, 2015 2:43 PM
Report: Walgreens nears deal to buy Rite Aid

Shares of Rite Aid jumped nearly 40 percent Tuesday afternoon on a report that it may be gobbled up in the next major acquisition by Walgreens, the biggest U.S. drugstore chain.

The Wall Street Journal said Walgreens Boots Alliance is in advanced talks to buy Rite Aid, which is based in Camp Hill, Pennsylvania. The deal would combine the largest and third-largest U.S. drugstore chains, based on store counts.

That tie-up would make one of the world's largest pharmaceutical buyers even bigger at a time when other key health care players like insurers and drugmakers also are expanding through multi-billion dollar deals.

A combination with Rite Aid could give Walgreens additional purchasing power in negotiating prices with drug companies, a hot topic given the rapid rise in cost for some prescriptions. It also may provide a little more leverage for hashing out reimbursement terms with payers like health insurers, noted analyst Vishnu Lekraj, who covers the sector for Morningstar.

Adding Rite Aid's 4,600 stores could help Walgreens lower price for its customers because its growing volume of prescriptions would put it in a better position in talks with drug providers.

The Deerfield, Illinois, company is less than a year removed from closing its acquisition of European health and beauty retailer Alliance Boots, which runs the biggest drugstore chain in the United Kingdom. That combination created Walgreens Boots Alliance Inc., which runs more than 13,200 stores and 350 distribution centers in 11 countries.

Alliance Boots leader Stefano Pessina, a driving force behind that deal, took over as CEO of the combined company in July. He told analysts then that Walgreens Boots Alliance was hungry for more deals, either internationally or in the United States.

Walgreens declined to comment Tuesday when contacted by The Associated Press.

Rite Aid runs drugstores in 31 states and the District of Columbia. The company has spent years turning around its business by cutting costs, closing underperforming stores and revamping others.

Even so, Lekraj said it has largely underperformed over the past five years, "which gives you an opportunity to get it at a good price."

The Journal said a deal could be announced Wednesday.

Rite Aid Corp. shares were up $2.31 to $8.39 in afternoon trading, while Walgreens rose more than 5 percent, or $4.93, to $94.41.