Walgreens confident Rite Aid merger will go through

Dive Brief:

Walgreens Boots Alliance Wednesday expressed confidence that the company’s proposal to buy U.S. drugstore rival Rite Aid for $9.4 billion would go through and that it would need to shutter just 500 stores after, far below many analysts’ expectations.
The company reported U.S. Q3 same-store sales rose 3.9%, despite a slow flu season and thanks partly to increases in prescriptions under Medicare. Without pharmacy sales, U.S. same-store sales rose 0.1%. Revenues were up 2.4% to $29.5 billion.
Executive vice chairman/ CEO Stefano Pessina also said the company managed to meet its goal of cutting $1 billion in expenses since Walgreens' 2014 merger with U.K. pharmacy giant Boots.

Dive Insight:

In the past Pessina and Walgreens Boots executives have declined to talk about how many stores they might have to shed in order for its proposed purchase of Rite Aid to pass muster with the Federal Trade Commission, which many observers say is on high alert against deals that could stifle competition.

The FTC is widely seen as having little appetite for mergers that could overly consolidate a sector; regulators won an injunction against a merger between office supply retailers Staples and Office Depot earlier this year, despite some evidence that competition from Amazon could soon disrupt the space.

Now Pessina, known for his belief in expansion, may be low-balling the number of closures that might be precipitated by any merger.

When the $9.4 billion deal was first announced last year, Rite Aid said it might close as many as 1,000 of the 12,8000 stores the combined company would run. And, as Fortune notes, real estate services company Cushman & Wakefield even estimated that it could be as many as 3,000 closures.

"Our proposed acquisition of Rite Aid is progressing as planned,” Pessina said in a conference call with analysts. “As you know, we are in the process of seeking a regulatory approval in parallel our integration team is continuing its work on preliminary planning. In June, we completed a $6 billion public bond offering to support the funding of the acquisition.”

Later he added, saying that the company expects the “deal to be done” sometime this year: “But of course, it doesn't depend on us, FTC will let us know when they are ready.”

Pessina also downplayed the so-called Brexit vote, saying that the company could weather the ensuing volatility and suggesting it could present opportunity.

“Since the quarter end as you are seeing the U.K. referendum on Europe has created some uncertainty and volatility in our market,” he told analysts. “Our businesses and management teams have operated through main business cycles in many markets. Perhaps changes normal and the sign of life. We work with and manage it every day. Less volatility and uncertainty create issues that would be overcome, but they also provide opportunity for our company.”

The company also raised the lower end of its guidance for fiscal year 2016 by 10 cents per share, saying it now anticipates adjusted net earnings per diluted share attributable to Walgreens Boots Alliance of $4.45 to $4.55.