Walgreens Boots Alliance Inc. and Rite Aid Corp. pushed out the deadline to close their $9.4 billion merger to next year amid delays in selling stores the two sides have to divest to get the deal past federal regulators.
The companies now expect to close the deal in early 2017, as the previous timetable of completing the transaction by the end of this year is no longer feasible. The companies expect to agree to sell between 500 and 1,000 stores by the end of 2016, though any transactions will also require approval from the Federal Trade Commission.
The delay is the latest adjustment to a deal that was announced almost one year ago after Walgreens said in September it would have to divest more stores than it previously expected. And it comes at a time when federal authorities have scuttled several other transactions, including the merger of Staples Inc. and Office Depot Inc. and Electrolux AB’s acquisition of General Electric Co.’s appliance business.
The protracted process has raised doubts as to whether the deal will reach the finish line. Rite-Aid shares have persistently traded well below the $9 a share offered by Walgreens and dipped below $6 earlier this week. However, both sides have continued to express confidence that they will eventually get the green light to merge.
But the affirmation that the deal is on track was cheered in markets. In morning trading Thursday, Rite-Aid shares rose 7.9% to $7.18 and Walgreens shares rose 3.8% to $80.07.
Meanwhile, Walgreens continues to push its plan to win more pharmacy customers, improve margins in its U.S. stores and cut costs throughout its enterprise. Thursday, Walgreens posted an increase in fourth-quarter profit as revenue edged higher.
In its largest division, the U.S. retail pharmacy business, Walgreens posted a 3.2% increase in sales at existing stores, with a stronger pharmacy sales offsetting a small decline in the front-end of the stores, where the company sells food and other everyday items. The company filled 3.9% more prescriptions versus a year ago as it continues to get more volume from Medicare patients.
Walgreens is hoping to win more patients to its pharmacies with a string of new agreements with health-care companies that encourage patients to use Walgreens pharmacies. Those include a recent partnership with Prime Therapeutics, a pharmacy-benefits manager owned by Blue Cross and Blue Shield health plans, that makes Walgreens a preferred pharmacy where patients pay less to fill prescriptions. It also replaced CVS Health as in-network pharmacy for Tricare, a health-care program for military personnel and their families.
By getting more patients into its drugstores to fill prescriptions, Walgreens hopes they will also shop more too. “These close partnerships are central to our strategy to increasing volumes to our pharmacies and driving footfall to our stores,” Walgreens Chief Executive Stefano Pessina said.
That strategy is different than the one employed by Walgreen’s main drugstore rival, CVS Health Inc., which owns a large pharmacy benefits management business in Caremark.
“This is the beauty of being independent,” Mr. Pessina said. “We can work with everybody and we can offer our services to everybody and we are not seen as particularly skewed to this or that player in the market.”
For the quarter, Walgreens reported a profit of $1.03 billion on flat revenue of $28.64 billion.
Source: The Wall Street Journal