Dive Brief:
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The Federal Trade Commission is unlikely to sanction the proposed $17.2 billion merger between Walgreens Boots Alliance and Rite Aid drugstores as is, Fortune reports, and could demand the spin-off of as many as 1,000 stores.
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In filings Monday, Walgreens told regulators it expects to close more like 500 stores.
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Without such a spinoff, the merger would create 12,600 drugstore locations in the U.S. and some 18,000 total worldwide, compared to CVS Health’s 8,000 U.S. locations (which will grow to 10,000 once its acquisition of Target’s pharmacy business is completed).
Dive Insight:
Walgreens bought up drugstore retailer Duane Reade in 2010 and U.K. drugstore giant Boots late last year, but that hasn’t, apparently, slaked its thirst.
The FTC is likely to scrutinize its latest proposed acquisition of Rite Aid not just because it would create, with drugstore giant CVS, a duopoly in the space, but also because rising prices on prescription medications in the U.S. are already of concern to regulators.
In drug pricing, size can lead to bargaining clout on the supplier side. Indeed, CVS and other drugstore retailers have acquired drug-distribution companies in order to better negotiate prices with Big Pharma.
But regulators will likely be concerned that consumers could face higher drug prices without enough competition on the retail side.
"There is increasing concern about drug pricing and competition in distribution," former FTC attorney David Balto told the Boston Globe. "It’s the kind of thing that will get very serious attention."
Whatever the number of stores it ultimately must divest itself of, Walgreens will likely have to find a retailer akin to Rite Aid, a regional player with national ambitions, to take them on, New York University Stern School of Business economics professor Lawrence White, told the Globe.
That could prove difficult and may emerge as a major obstacle to this deal.
