US pharmacy retail giant Walgreens Boots Alliance said on Tuesday (27 October) that it would buyout Rite Aid for about $17.2bn (£11.2bn, €15.6bn) including debt. The deal will help strengthen its leverage with suppliers and pharmacy benefit managers, and would enable the company to save $1bn.
Walgreens will also get access to Rite Aid's heath insurance business, which chief executive Stefano Pessina was keen to acquire. Under the deal, Rite Aid stockholders will be paid $9 per share. The value is at a premium of 48% to the closing price of Rite Aid's shares on Monday, giving it an equity value of $9.45bn with net debt of $7.75bn.
Rite Aid's 4,561 pharmacies in 31 states will get added to Walgreens existing portfolio of 8,232 stores to create a footprint of 12,793 pharmacies.
The American healthcare space has witnessed $427bn of M&A deals this year, according to Dealogic. These deals have been primarily spurred by the Affordable Care Act (ACA) under the ObamaCare reform, which aims to reduce cost to make healthcare accessible for the poorest in the country.
Speaking of the Walgreens deal, Adam J. Fein, president of Pembroke Consulting said, "The pharmacy consolidation endgame has begun. Rite Aid was one of the last remaining pharmacy assets available for purchase." While, Vishnu Lekraj, a senior healthcare analyst at Morningstar, said that the deal will help Walgreens expand its presence in northeast in the US.
Walgreen's present size is itself the result of a series of acquisitions in the past. In August last year, it acquired British chemist Alliance Boots, in which it previously had a 45% stake. Its older deals include acquiring Duane Reade, USA Drugs and Kerr Drug. Post the acquisitions, Walgreen operates more than 8,200 stores with annual revenues exceeding $76bn.
Rite Aid announced revenues of $26.5bn for the fiscal year ended February. The integration of the two companies will happen over time as they will initially operate as separate entities.