Coverage: Walgreens cuts price to buy Rite Aid

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.

Tom Murphy of the Associated Press had the news:

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.

Mike Juang of CNBC.com notes that Walgreens will sell 200 more Rite Aid locations than expected:

Walgreens will also divest up to 1,200 Rite Aid stores, 200 more than the original agreement stipulated.

The new terms also set shares of Rite Aid at a maximum of $7 per share and $6.50 minimum. Walgreens agreed to purchase Rite Aid in October 2015, initially for $9 per share in cash.

In an email to CNBC, a spokesman for Rite Aid says the additional divestment is to obtain regulatory approval from the Federal Trade Commission.

All this means Rite Aid shareholders are getting less than they would have under the original deal, with a payout coming months later than expected. The deal is now expected to close by the end of July this year, according to a press release. The agreement will see Walgreens acquire all outstanding shares of Rite Aid.

Bruce Japsen of Forbes reports that it’s unclear whether Fred’s remains the only buyer for the Rite Aid locations:

The announcement Monday comes after weeks of haggling with FTC lawyers on a way for Walgreens to buy Rite Aid. A merger agreement that expired Friday night to complete the transaction has now been extended from Jan. 27, 2017 to July 31, 2017 “in order to allow the parties additional time to obtain regulatory approval,” Walgreens said.

It’s unclear whether Fred’s, Inc. will remain the only buyer for all of the Rite Aids that could potentially be divested. But the existing deal with Fred’s hasn’t changed for the 865 Rite Aid stores. “Our agreement with Fred’s remains in place,” Walgreens said. Boots Alliance spokesman said.

Because of the new terms, Walgreens “no longer expects any material accretion in fiscal 2017.” Thus, Walgreens has adjusted its fiscal 2017 net earnings to between $4.90 and $5.08 per share. “The company continues to expect that it will realize synergies from the acquisition of Rite Aid in excess of $1 billion, to be fully realized within three to four years of the closing of the merger,” Walgreens said in a filing Monday with the U.S. Securities and Exchange Commission.