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Walgreens, Rite Aid push deal to 2017

Update: CEO says company 'absolutely confident' of completion

Walgreens Boots Alliance says its planned $17.2 billion acquisition of Rite Aid Corp. is “progressing as planned,” but won’t close this calendar year as originally expected.

Instead, Walgreens announced this morning, the company “remains actively engaged with the Federal Trade Commission” regarding the 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.”

“As far as we can see today, we are absolutely confident that we can … do the deal,” Walgreens CEO Stefano Pessina (read our exclusive 2015 interview) told analysts during a conference call this morning.

While the FTC has had many questions, Pessina said he has never sensed any “negative attitude” from the agency.

Nonetheless, questions about how many stores will be shed to earn FTC approval, and who might buy them, have been circulating for months among media outlets and investors. On Wednesday, a New York Post report cited sources who said several private equity firms had passed on the stores, and grocery chain Kroger also may be having second thoughts.

A Walgreens spokesman declined to comment when contacted Wednesday by CPBJ.

New target date

Illinois-based Walgreens announced plans to acquire Cumberland County-based Rite Aid nearly a year ago, on Oct. 27, 2015. Until this morning, all statements had indicated the transaction was expected to close in the second half of 2016.

In a joint statement, Rite Aid and Walgreens announced they have mutually agreed to extend the end date of their merger agreement from Oct. 27, 2016 to Jan. 27, 2017, as permitted under the merger agreement.

“The company believes that it will be able to execute agreements to divest these stores to potential buyers, pending FTC approval, by the end of calendar year 2016, and now expects its acquisition of Rite Aid will close in early calendar 2017,” the company announced this morning in conjunction with the release of its third quarter earnings report.

Walgreens, the nation’s top pharmacy chain, has about 8,200 stores nationwide. Rite Aid — No. 3 in the nation, behind CVS — has 4,550 stores in 31 states and the District of Columbia.

Rite Aid, whose headquarters are in East Pennsboro Township, has a substantial presence in the midstate region. More than 70 of Rite Aid’s stores are located within a 50-mile radius of downtown Harrisburg, while there are only a handful of Walgreens locations in the area.

Less than a week after the proposed sale was announced last year, Walgreens indicated it was willing to shed as many as 1,000 stores if required by regulators.

In July, Pessina said he expected only about 500 stores would have to be divested. But in September that position changed, with the company announcing the number was expected to fall between 500 and 1,000.

Rite Aid, meanwhile, announced as part of its third-quarter earnings statement on Sept. 22 that it continued to believe the transaction would close by the end of 2016.

$1 billion in savings

Walgreens officials say they continue to expect the merger will result in savings — “synergies,” in corporate parlance — within three to four years of closing. Such savings would “be derived primarily from procurement, cost savings and other operational matters.”

For those in the midstate wondering what this mean for the Rite Aid stores, brand and jobs, the jury is still out.

How long it will take to realize full any savings, and in what form, won’t be known until the sale is complete, “because, as you know, we’re not allowed to see their numbers,” Pessina said of Rite Aid.

Pessina has previously said decisions about integrating the two companies will be made over time, including the future of Rite Aid’s corporate presence in Pennsylvania. Walgreens has said Rite Aid would continue to operate as a subsidiary under its own name for an unspecified period after the sale.

As for which stores might be divested, the CEO also had nothing concrete to share.

“Even if we knew them we could not disclose them,” Pessina said. “It’s too early. Maybe in a few months we can disclose this.”

Roger DuPuis
Roger DuPuis covers Cumberland County, health care, transportation, distribution, energy and environment. Have a tip or question for him? Email him at [email protected].

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