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Walgreens pushs back deadline, lowers price for Rite Aid

Written by The Associated Press | Jan 30, 2017 11:47 AM
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FILE PHOTO:  Customers leave a Walgreens pharmacy. (AP Photo/Rogelio V. Solis, File)

(Undated) -- Walgreens substantially lowered its offering price for drugstore rival Rite Aid and, facing resistance from U.S. regulators, raised the number of stores it would be willing to unload to ease monopoly concerns.

The companies initially expected to sell no more than 500 stores, but that was pushed to 1,200 under the new terms announced Monday.

The new offer for Rite Aid is between $6.50 to $7 per share, depending on how many stores need to be divested. When the deal was first announced in late 2015, Walgreens bid $9 per share, roughly $9.4 billion, for the nation's third-largest drugstore chain.

The lower price range would cut the deal's new value to between $6.84 billion and $7.36 billion, based on Rite Aid's roughly 1.05 billion outstanding shares.

The deadline to complete the deal, which expired last week, has been extended to the end of July.

Shares of Rite Aid Corp. tumbled more than 16 percent to $5.79 in midday trading Monday.

The combination of Walgreens and Rite Aid would create a drugstore giant with more than 11,000 stores nationally, even with the sale of more than a thousand stores. That's a few thousand more than nearest competitor, CVS Caremark Crop.

Rite Aid, based in Camp Hill, Pennsylvania, runs nearly 4,600 drugstores in 31 states, and the addition of its locations is expected to give Walgreens more negotiating muscle with drugmakers and other suppliers and to grow its presence in the Northeast and Southern California.

Walgreens also has a sizeable overseas presence, especially in the United Kingdom. It currently runs more than 13,000 stores in 11 countries, including 8,175 in the United States.

Walgreens said last December -- more than a year after announcing the Rite Aid deal -- that it would sell 865 stores to rival retailer Fred's for $950 million due to concerns raised by federal anti-trust regulators.

A Walgreens spokesman said Monday that the company still has an existing deal with Fred's, but he declined to comment on whether that company had agreed to buy more stores or if another potential buyer had emerged.

Under the revamped deal, Walgreens, based in Deerfield, Illinois, will pay $6.50 per share for Rite Aid if it is required to divest 1,200 stores. The price rises to $7 per share if 1,000 or fewer are required.

Walgreens executives told analysts earlier this month that they still expected to close the deal. Executive Vice Chairman and CEO Stefano Pessina said Walgreens had a "very good" relationship with Federal Trade Commission representatives, and the company wasn't thinking of alternatives to the deal.

"We are working hard to have this deal approved and for the time being we don't want to even think that the deal could not be approved after so many months," he told analysts during a Jan. 5 conference call to discuss earnings.

Major deals have come under tough scrutiny because of the potential impact on consumers.

Last week, a federal judge rejected Aetna Inc.'s $34 billion bid for rival Humana Inc. on competitive grounds. The Department of Justice sued last summer to block that deal and a separate insurance acquisition, Anthem Inc.'s $48-billion purchase of Cigna Corp.

An opinion has yet to be rendered in the Anthem case.

Shares of Fred's Inc. jumped 4 percent to $14.69, while Walgreens Boots Alliance Inc. slipped 3 cents to $81.53, as broader indexes also fell.

*An earlier version of the story is below*

(Undated) -- Walgreens is lowering the price it will pay to buy drugstore rival Rite Aid and raising the number of stores it will unload to ease monopoly concerns.

The companies initially planned to sell no more than 500 stores, but that was pushed to 1,200 earlier today.

Walgreens will now spend between $6.50 to $7 per share of shares of Rite Aid, depending on how many stores they need to divest. Walgreens originally planned to pay $9 per share for the nation's third-largest drugstore chain in a roughly $9.4 billion deal announced in the fall of 2015.

The deadline to complete the deal, which expired last week, was extended to the end of July.

Shares of Rite Aid Corp. tumbled 16 percent to $5.81, while Walgreens Boots Alliance Inc. are up slightly.

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