The company said Thursday that the store closures, while more than 500, would likely be fewer than 1,000. It said the divestitures would help expedite the approval process with the Federal Trade Commission.
Walgreens also said it and Rite Aid remain “actively engaged” with the FTC regarding the agency’s review of the planned acquisition.
There’s been concern over the length of time for the FTC review, given that regulators more recently have shown concern over mega mergers. It stopped Staples from buying Office Depot and had sued to block the planned mergers of Anthem Inc. and Cigna Corp. and of Aetna Inc. and Humana Inc.
Walgreens allayed those concerns, stating: “As a result of the progress of these discussions with the FTC staff, Walgreens Boots Alliance is exploring potential divestiture remedies to address certain issues raised in those discussions.”
The also company said its continues to believe that the acquisition will close in the second half of calendar 2016.
Taking into account the expected store divestitures, Walgreens said it expects that the acquisition “will be accretive to its adjusted earnings per share in the first full year after closing of the transaction.” Walgreens also said it expects to realize synergies in excess of $1 billion, which should be realized within three to four years of closing. The synergies are expected to be primarily from procurement, cost savings and other operational matters, Walgreens said.
Walgreens Boots, created through the combination of Walgreens and Alliance Boots in December 2014, said in October 2015 it would acquire Rite Aid. The pharmacy giant operates over 8,000 stores across every state, while Rite Aid has over 4,000 stores in 31 states.
Maggie Taylor, senior vice president at rating agency Moody’s Investors Service, said that the “increase on the amount of potential store divestitures that may be required by the FTC for approval to acquire Rite Aid is in line with our original expectations.” She added that should the level of divestitures “materially increase above 1,000 stores,” Moody’s would reconsider its earnings expectations for Walgreens going forward.
Senior director David Silverman at Fitch Ratings, another ratings firm, also said the closures are consistent with Fitch’s expectations for up to 1,000 stores to be closed. He said, “Typically, drugstores are able to retain more of their customer base and sales than other types of retailers in consolidation as prescription files get transferred from closing stores to remaining ones. The company reiterated its $1 billion synergy guidance for the deal; we continue to believe $750 million is possible.”