$950 Million Divestment a Key Part of the Walgreens-Rite Aid Merger
Last October, big news hit the drug store sect. Two of the nation’s three largest chains and former rivals, Walgreens and Rite Aid, agreed to join forces and form the largest drug store chain in America. However, as with any retail merger, in order to satisfy federal anti-trust concerns, the new conglomerate must divest some of its locations. Basically, in order to sell itself to Walgreens, Rite Aid had to pare itself down.
Rumors circulated for awhile regarding who would buy what and when. The only certainty was that something needed to happen. In fact, with more than 12,000 locations between the two companies, Walgreens announced that it would ax up to 1,000 locations to get their deal through the FTC. For a long time, rumors that grocery chain Kroger would take over some locations dominated the news.
However, this week, Walgreens Boots Alliance and Rite Aid Corp. announced that Memphis-based drugstore chain Fred’s agreed to pay $950 million for 865 Rite Aid locations. Most of the Rite Aid stores sold to Fred’s are in the southeast, but many are also on the East and West coasts.
This sale represents a major expansion for Fred’s, which currently owns only 581 stores, almost all of which are in the southeast. Upon completion of this sale, Fred’s will become the 3rd largest drug store chain in America. They stated that with this sale they intend to “create a new national competitor.” CVS, the largest chain currently, will drop to #2 when the Walgreens-Rite Aid merger completes.
What Changes to Expect and When
The merger between Walgreens and Rite Aid is set to finalize early in the new year and will include the deal with Fred’s. However, an immediate change from Rite Aid to Walgreens or Fred’s will still be a long time coming for many communities. Fred’s announced that over a 24-month transition period, it will retain the Rite Aid name. They also intend to keep all current employees.
Similarly, Walgreens has yet to announce which, if any, Rite Aid stores will officially change over to Walgreens next year. There are also additional rumors that, once the deal closes, several Rite Aid stores may simply close because of their proximity to Walgreens.
In addition, which stores are included in the deal with Fred’s will remain a mystery until the merger and sale finalize in 2017. First, the companies are waiting for approval from the FTC for the merger, set to happen early in 2017.