Walgreens and Rite Aid have agreed to sell 865 Rite Aid stores for nearly $1 billion, a move the companies said Tuesday is in response to federal government concerns over Walgreens’ proposed acquisition of Rite Aid.

The stores are being sold to Fred’s Pharmacy, which is based in Memphis, Tennessee. It was not immediately clear which Rite Aid stores will be sold. The chain has at least 20 stores in metro Sacramento listed on its website.

Fred’s which currently operates 647 discount general merchandise stores in 15 Southeastern U.S. states, said the transaction will make it the third-largest drugstore chain in the nation.

The $950 million all-cash deal is expected to close in the first half of 2017, pending the approval of Walgreens’ acquisition of Rite Aid.

Deerfield, Illinois-based Walgreens announced its proposed acquisition of Camp Hill, Pennsylvania-based Rite Aid in October 2015.

“Walgreens Boots Alliance is actively engaged in discussions with the (Federal Trade Commission) regarding the transaction and is working toward a close of the Rite Aid acquisition in early calendar 2017,” the companies said in a news release.

“This will be a transformative event for Fred’s Pharmacy that will accelerate our health care growth strategy through our acquisition of 865 new stores located in highly attractive markets,” Michael Bloom, Fred’s Pharmacy CEO, said in a statement. “We believe that this transaction will also create tremendous opportunities for both our new and existing front of store and pharmacy team members. We look forward to realizing the considerable benefits this transaction will bring to our customers, patients, payors, supplier partners, team members and shareholders.”

Speculation that Fred’s would acquire Walgreens or Rite Aids stores was strengthened during Fred’s third quarter earnings call after a pending transaction was mentioned.

Walgreens Boots Alliance announced in 2015 it would acquire Rite Aid Corp. in a $9.4 billion deal. Before that deal can close, the companies have to sell or divest up to 1,000 stores to comply with federal regulations. Enter Fred’s.

According to the release, Fred’s is expected to close on the stores several months after Walgreens Boots Alliance and Rite Aid Corp. close on their deal. The Walgreens/Rite Aid acquisition is still subject to final Federal Trade Commission and other regulatory measures.

“We have been working for several months on integration plans to ensure a seamless transition for Rite Aid customers, patients, team members and supplier partners by leveraging our world-class senior leadership team’s significant expertise in managing major healthcare acquisitions and integrations,” Bloom said. “We assembled this highly experienced team in 2015, implemented upgrades to our infrastructure in 2016, and now, in 2017, we look forward to the continued optimization of our business, fueled by today’s milestone announcement. We believe the purchase of these stores will not only complement recent investments in our team members, processes and technological infrastructure, but also positively impact our business and maximize shareholder value.”

Upon completion of the acquisition, Fred’s will continue to operate the stores as Rite Aids through a 24-month transition.

Source: Sacramento Business Journal