Walgreens gets regulatory nod for slimmed-down Rite Aid deal

(Reuters) - U.S. antitrust regulators have allowed a slimmed-down deal for drugstore chain Walgreens Boots Alliance Inc WBA.O to buy about 42 percent of Rite Aid Corp's RAD.N U.S. stores for $4.38 billion, Walgreens said on Tuesday.

A pedestrian passes a sign for a Walgreens pharmacy in Somerville, Massachusetts, U.S., June 29, 2017. REUTERS/Brian Snyder

Walgreens will acquire 1,932 Rite Aid stores, 254 fewer than it announced in July, in areas where competition between the two chains is not significant.

Rite Aid shares slid 9.3 percent at $2.48 while Walgreens was down 1.8 percent to $81.11.

One member of the Federal Trade Commission was concerned that a smaller Rite Aid may be unable to compete against its larger rivals.

The deal, which widens Walgreens’ footprint in the United States, began as an offer made in October 2015 to buy all of Rite Aid’s 4,600 stores. But Walgreens failed to win approval for that $9.4 billion deal and rejigged it.

Walgreens operates stores under its own name as well as Boots stores in Britain and Duane Reade stores in the United States.

Under the deal, Rite Aid has the option of joining Walgreens’ group purchasing agreement to negotiate discounts on generic drug prices.

Walgreens said it will also buy Rite Aid’s three distribution centers in Connecticut, Pennsylvania and South Carolina.

Republican Maureen Ohlhausen, the acting chairman of the Federal Trade Commission which approved the deal, said a sharply smaller Rite Aid will still be able to effectively compete against Walgreens and the other big U.S. chain, CVS Health Corp CVS.N.

“Walgreens’ acquisition of Rite Aid stores in the

revised transaction is limited to areas where competition between the two firms is not significant," she said. Kroger KR.N and Wal-Mart WMT.N and other big supermarket chains and retailers also offer significant pharmacy services, she added.

Commissioner Terrell McSweeny, a Democrat and the only other member of what should be a five-member commission, said she feared the deal “continues to raise significant competition issues.”

“In particular, I am concerned that the transaction could reduce Rite Aid’s long-term ability to obtain low generic drug prices,” she said.

Leerink analyst David Larsen said in a research note he was “pleasantly surprised” the deal was approved without lengthy scrutiny.

One antitrust expert, Andre Barlow of law firm Doyle, Barlow and Mazard PLLC, noted that Rite Aid was a smaller, No. 3 behind two behemoths.

“Clearly a smaller chain doesn’t have the same leverage as a larger chain. But there is probably a legitimate concern that Rite Aid wasn’t an effective competitor prior to the acquisition,” he said.

Walgreens said it does not expect the deal to have a significant impact on its adjusted earnings for the fiscal year ending Aug. 31, 2018.

Store purchases would begin in October and are expected to be completed in spring 2018.

Reporting by Gayathree Ganesan in Bengaluru and Diane Bartz in Washington; Editing by Martina D’Couto and Jeffrey Benkoe