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From Antitrust Law Daily, September 19, 2017

Walgreens’ modified acquisition of Rite Aid clears FTC

By Jeffrey May, J.D.

Nearly two years after plans for a merger of the Walgreens and Rite Aid drugstore chains was first announced, a significantly scaled-back version of the deal has cleared the FTC. Today, Walgreens Boots Alliance, Inc. reported that the Hart-Scott-Rodino Act premerger waiting period had expired for its agreement with Rite Aid to purchase 1,932 stores, three distribution centers, and related inventory for $4.375 billion. Despite concerns from FTC Commissioner Terrell McSweeny "that even the revised current Walgreens-Rite Aid deal continues to raise significant competition issues," a divided Commission allowed the modified transaction to go forward.

The original deal to acquire all of Rite Aid’s assets, disclosed in October 2015, was valued at approximately $17.2 billion. That transaction was abandoned in June 2017, after the parties were told the agreement would not win government approval. A scaled-back proposal calling for the purchase of 2,186 stores for $5.175 billion was announced at that time. Under the amended and restated agreement that has now cleared the FTC, Rite Aid will retain approximately 250 additional stores as compared to the agreement disclosed in June.

Rite Aid Corporation currently operates more than 4,500 stores in 31 states and the District of Columbia. The company will retain a majority of its network. The 1,932 stores to be sold to Walgreens are primarily located in the Northeast and Southern regions of the United States, as are the three distribution centers, according to a statement released by the chain today.

Walgreens Boots Alliance describes itself as "the largest retail pharmacy, health and daily living destination across the USA and Europe." The company currently has 13,200 stores in 11 countries.

Commissioner McSweeny’s concerns. "The parties’ new deal—particularly following its restructuring to leave hundreds more stores with Rite Aid—is better than the previous one," said McSweeny, expressing her disagreement with the decision to allow the acquisition to move forward without further investigation. "Many of the most obvious harms to competition have been addressed." However, McSweeny noted her concerns "that the transaction will leave some communities with fewer pharmacy options and could lead to higher drug prices and a deterioration in non-price aspects of competition."

Acting chairman’s statement. Acting FTC Chairman Maureen K. Ohlhausen said that the deal should not be characterized as a "three-to-two" merger. "Walgreens’ acquisition of Rite Aid stores in the revised transaction is limited to areas where competition between the two firms is not significant," according to Ohlhausen. "In some parts of the country, either Rite Aid or Walgreens (or both) have a limited presence, and, in some places, different types of retail pharmacy providers, such as mass merchants or supermarkets like Kroger and Wal-Mart, are significant competitors," the acting chairman explained. In her view, a more extended investigation was unlikely to uncover "additional, different facts overlooked during the staff’s exhaustive, 22-month investigation" that would change the analysis.

Companies: Walgreens Boots Alliance, Inc.; Rite Aid Corp.

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