Ending speculation, Walgreens Boots Alliance agreed to buy Rite Aid Corp. for about $9.4 billion late Tuesday.
The acquisition was first reported in the Wall Street Journal, just ahead of WBA’s fourth quarter earnings call slated for Wednesday morning.
The deal ends months of speculation since Rite Aid was identified as an acquisition target for the recently formed Walgreens Boots Alliance, especially following statements by WBA’s chief executive officer Stefano Pessina. Pessina said he expects the American markets will undergo substantial consolidation and that “we want to be part of that.”
Walgreens had sales in the 12 months ended in August 2014 totaling $76.4 billion. Rite Aid’s revenues for fiscal 2015 clocked in at $26.5 billion.
The merger fuses the number-one (by store count) and third-largest U.S. drugstore chains. Combined, the two retailers will operate close to 13,000 units in the U.S. In comparison, number-two chain in store count, CVS has about 7,800 retail pharmacies. One source familiar with the operations noted there is overlap in many markets, which could result in the need for closures or the sale of some doors. “But the prescription business could be well-combined,” added industry consultant Allan Mottus.
After pharmacy, beauty could be one of the categories most impacted by the deal. Rite Aid has done much in the past few years to elevate its beauty presence with hand-picked independent brands in select markets, illuminated fixtures and increased service. The improved stature in cosmetics could be attractive to WBA as its rolls out more of the Boots beauty concept across the U.S. One industry analyst likened it to when Duane Reade spruced up its beauty assortment, which was seen as one of the departments that attracted Walgreens to the New York powerhouse in 2010. Rite Aid has been burnishing its overall store image with its Genuine Wellbeing store format with upscale touches such as a wood floor leading to pharmacy, a Wellness ambassador and gluten-free food options.
That’s countered, however, by what some industry experts see as numerous unprofitable Rite Aid locations and high debt.