So I didn’t see this one coming, apparently the FTC is a little leery of Walgreen’s outright purchase of Rite-Aid creating too much of a monopoly, so Rite-Aid is selling 865 of their stores to a small chain called Fred’s.
Fred’s is a small regional chain based in Memphis that has been losing money and closing stores, but even though they have only $5.7 million in cash, they secured financing of over $1.5 billion dollars. They have only 650 stores (only half have pharmacies!) so will be doubling their store size.
What the heck? If I knew it only took $5.7 million in cash to buy that many stores and instantly become the 3rd largest drug chain, I think I could have gotten a few friends from Longs together and we could have started our own drug chain. We couldn’t call it Longs, but we could run it like Longs, hire a bunch of Longs people back and live happily ever after. Or at least until CVS buys us out…
In a bid to bolster its chances to buy Rite Aid, Walgreens Boots Alliance (WBA) and Rite Aid (RAD)said Tuesday that they plan to sell hundreds of Rite Aid locations to Fred’s Inc. (FRED) for $950 million.
If the sale of the 865 stores gets the green light from regulators, Fred’s would instantly become one of the biggest pharmacy chains in the U.S., and Walgreens’ year-long quest to merge with its drug store rival would move closer to its goal of the deal closing at the start of next year
Investors seemed pleased by the move. Shares in Fred’s soared almost 80% in afternoon trading. Rite Aid shares rose 5.4% and Walgreens saw a more modest uptick of .0.4%.
Walgreens, which merged with Alliance Boots two years ago, said that it planned to buy Rite Aid in October, 2015 for $9.5 billion. But federal trade officials have expressed concerns about the melding of the world’s largest retail pharmacy chain with Rite Aid’s 4,600 stores in the U.S.
Employees at the Rite Aid stores purchased by Fred’s are expected to keep their jobs, according to the proposed deal. And the locations would maintain the Rite Aid name, at least for a time. Fred’s would also have to purchase any other stores that Walgreens has to sell in order to satisfy federal regulators.
“We are pleased to have found an experienced pharmacy operator for these stores,” Stefano Pessina, executive vice chairman and CEO of Walgreens Boots Alliance said in a statement. “With this agreement, we are moving ahead with important work necessary to obtain approval of our acquisition of Rite Aid. We look forward to continuing to provide our customers and patients with the highest level of care and attention.”
Walgreens says that the savings and other efficiencies gained from a merger with Rite Aid will total more than $1 billion in the first three to four years of their being a unified company.