Pharmaceutical Commerce - July/August 2017 - 9

Top News
Walgreens-Rite Aid merger falls away, replaced by sale of
some stores
$325-million cancellation fee to be paid to Rite Aid; an M&A pause in pharma?
The drawn-out bid by Walgreens
Boots Alliance Inc. to acquire Rite Aid, first
announced in October 2015, has ended. In
its place, WBA is purchasing 2,186 stores and
three distribution centers, for $5.175 billion
in cash. And because the acquisition bid has
failed, WBA owes Rite Aid a $325-million
termination fee.
The cancelled acquisition also ends the
plan for Fred's Pharmacy, a regional chain
which was to have acquired 865 Rite Aid stores
excluded from the acquisition out of antitrust
concerns. According to press reports, Fred's is
to receive a $25-million termination fee. Its
stock, as well as Rite Aid's, initially fell on news
of the cancelled deal.
WBA's original bid was to acquire the
entire company and its then-4,175 stores for
$9.4 billion; that was revised to acquiring
the company for $7.4 billion and divesting
865 stores to Fred's. Negotiations with FTC
dragged on and were to have concluded in
a definitive decision (by WBA's request) by
July 7. WBA's pre-emptive action reopens
(or renews?) the antitrust negotiation: WBA
offers that it expects this deal to close by the
end of this year, and then to take another six
months or so to integrate the stores.
Initial financial analyst observations were
over what will happen with what is left of Rite
Aid: some 2,400 stores, presumably of lesser
quality than the ones to be acquired by WBA.
Rite Aid also wins the option, exercisable
through May 2019, of becoming a member
of WBA's group purchasing organization,
Walgreens Boots Alliance Development
GmbH. If the new deal goes as planned, WBA
will have some 10,300 stores, still nosing out
ahead of CVS Health's 9,600 to be the No. 1
chain by number of locations. WBA itself is
a multinational, with substantial operations
in Europe and other parts of the world, and
with a tight drug-supply arrangement with
AmerisourceBergen.

and AmerisourceBergen before that.) But
while those businesses are certainly sustaining
themselves, there doesn't appear to be a driver
for increasing transnational wholesaling.

That leaves the pharma companies
themselves, as well as healthcare providers
like integrated health systems, which have
been on a consolidation tear for years now.

The picture for pharma, as opposed to
healthcare delivery, is that it is inherently
a global business (drug companies have
continued on page 26

Broader implication
The cessation of the Walgreens-Rite
Aid merger, combined with earlier actions
between the Federal Trade Commission and
large insurers, represents something of a
changed direction (or at least a high-water
mark) for consolidation in the pharma/
healthcare ecosystem. Last year, both the
Aetna-Humana and Cigna-Anthem mergers
went aground, mostly over antitrust concerns
and not helped by disunity between the
merger partners.
In drug wholesaling, there is very little
left of public companies that have not
already been acquired by the Big Three; it's
possible that some of the smaller, privately
held firms will be in play (Cardinal acquired
Harvard Drug Cooperative in 2015).
There has been activity in recent years
internationally (McKesson-Celesio in early
2015, and a variety of actions by Cardinal
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Pharmaceutical Commerce - July/August 2017 - Cover4
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