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Memphis-based Fred's Pharmacy to buy 865 Rite Aid storesDeal worth $950M in cash

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A Southern drugstore company has agreed to buy 865 Rite Aid stores, creating what officials say will be the nation's third-largest pharmacy chain and helping pave the way for Rite Aid's planned merger with Walgreens Boots Alliance Inc.

Memphis-based Fred's Inc. has signed an agreement to make a $950 million cash purchase for the stores with Walgreens and Rite Aid Corp., according to a statement released this morning.

The move would appear to be a critical step toward completion of Walgreens' pending $17.2 billion purchase of East Pennsboro Township-based Rite Aid, which was announced in 2015 but has been awaiting regulatory approval.

Walgreens this fall said the company "remains actively engaged with the Federal Trade Commission" regarding the Rite Aid deal, "and continues to expect that the most likely outcome will be that the parties will be required to divest between 500 and 1,000 stores."

The end date of their merger agreement was extended from Oct. 27, 2016 to Jan. 27, 2017 as a result of those ongoing talks.

According to Fred's, closing of the store purchase is expected to take several months after the Walgreens-Rite Aid closure. The sale is subject to approval by the Federal Trade Commission as well as customary regulatory approvals and closing conditions, but shareholder approval is not required, Fred's officials said.

It was not immediately clear where the affected stores are located, other than "across the Eastern and Western United States."

Walgreens spokesman Michael Polzin said the company isn't "providing any detail on locations at this time, other than that the acquired stores would give Fred’s a significant presence on the East and West Coasts."

Rite Aid operates nearly 4,600 stores in 31 states and the District of Columbia, including dozens in the midstate.

Fred's CEO Michael K. Bloom said the company has been "working for several months on integration plans to ensure a seamless transition for Rite Aid customers."

Upon completion of the acquisition, Fred's will operate the acquired stores and will retain the Rite Aid banner through a 24-month transition, officials said.

Polzin told the Business Journal there also was "nothing new to report" about the future of Rite Aid's East Pennsboro Township corporate headquarters, and "we haven’t outlined any timeline on the Rite Aid brand for the stores that will continue to be part of (Walgreens)."

Illinois-based Walgreens last October last year unveiled its $9-per-share proposal to acquire Cumberland County-based Rite Aid, bringing together the nation's current No. 1 and 3 pharmacy chains, respectively.

But key to closing the deal, observers have said, is for Walgreens to shed stores to meet the FTC's antitrust concerns. And that process seemed to stall during the late summer and early fall, especially after news emerged that potential buyer Kroger Co., America's largest supermarket chain, was having second thoughts.

"We are pleased to have found an experienced pharmacy operator for these stores," said Walgreens Boots Alliance executive vice chairman and CEO Stefano Pessina. "With this agreement, we are moving ahead with important work necessary to obtain approval of our acquisition of Rite Aid."

Tracing its history back to a Mississippi store that opened in 1947, Fred's operates more than 650 discount general merchandise stores, including 19 franchised Fred's stores, mainly across the Southeastern states.

"We greatly appreciate the dedication of our Rite Aid associates who are taking great care of our customers and patients during this period," said Rite Aid chairman and CEO John Standley.

"We look forward to working closely with Fred’s to ensure a smooth, successful transition for our customers, patients and associates in the divested stores," he said.

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Roger DuPuis

Roger DuPuis

Roger DuPuis covers Cumberland County, health care, transportation, distribution, energy and environment. Have a tip or question for him? Email him at rdupuis@cpbj.com. Follow him on Twitter, @rogerdupuis2.

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