FTC approval of Walgreens-Rite Aid merger reportedly imminent

Dive Brief:

Regulators at the Federal Trade Commission are working hard to finish their review of Walgreens Boots Alliance’s proposed $9.4 billion acquisition of drugstore rival Rite Aid in anticipation of approving the deal, the New York Post reports.
A source told the Post that FTC Commissioner Maureen Ohlhausen, a Republican nominated by President Barack Obama, is determined to give the green light before Donald Trump’s inauguration. “It’s very clear to everyone that Maureen Ohlhausen is not going to block a deal,” the source said.
The FTC's current chairperson, Edith Ramirez, was instrumental in blocking the proposed $6.3 billion merger of office supply rivals Staples and Office Depot, which couldn’t get past an FTC-requested court injunction in May last year. Ramirez is expected to leave the agency upon Trump taking office, and has wrung concessions from Walgreens while she can, according to the Post. Both the FTC and Walgreens declined to comment.

Dive Insight:

Walgreens Boots Alliance, despite a first quarter sales decline, last week raised the lower end of its guidance for fiscal year 2017 by 5 cents per share in anticipation that its deal with Rite Aid will go through, and its confidence appears to be warranted.

To assuage antitrust regulators, Walgreens and Rite Aid last month announced an agreement with Fred's Pharmacy, which will purchase 865 stores and certain assets related to store operations located across the eastern and western U.S. for $950 million in cash. That deal is contingent upon the Walgreens-Rite Aid tie-up's approval.

That deal, which would position Fred's Pharmacy as the third-largest drugstore chain in the United States, surprised some analysts. “We’re a little surprised that Fred’s is able to buy 865 stores, but if approved it would be very significant to create a third national competitor,” Betty Chan, a senior analyst at Elevation Securities, told Retail Dive last week. “Fred being a new national competitor now is something that the FTC would like to see — it’s just a question of whether or not they can hammer out the final details now.” Indeed, the FTC is likely to require Fred’s to raise more equity to shore up its financing, a source told the Post.

Walgreens Boots CEO Stefano Pessina told analysts last week that it would be a “big surprise” if the merger didn’t go through.

“[W]e have had a very good relationship with the people of the FTC and they have continued to ask information and we have continued to gain information, and in reality we believe that if they have spent so much time asking self, and analyzing so many documents is because they want to understand the transaction, which is fine," he said. "So we are not thinking of a Plan B today.”