RiteAid sale: Should Walgreens own half of U.S. drug stores?
Stores, Pa. HQ threatened in Rite Aid deal
Walgreens Boots Alliance (they own Walgreens drugstores all over the U.S. and Boots in the U.K.) plans to spend $9.4 billion (and take on $7.5 billion in debt) buying out Camp Hill (near Harrisburg)-based Rite Aid stores, one of the nation's largest retail drugstore chains.
Walgreens wants to cut at least $1 billion in expenses out of Rite Aid (which spends around $6.5 billion a year). That means likely cutbacks at the company's Camp Hill headquarters and store closings in many areas (like Philadelphia) where the chains compete -- and customers can expect less competition and higher prices.
It's an "aggressive" deal, Standard & Poor's analyst Jim Henry told clients in a report, warning S&P may downgrade Walgreens' BBB credit rating given the difficulty of making the merger work with the stores' big debt load. Henry noted that two-thirds of Rite Aid's 4,500 stores haven't been renovated in years, and will need "a substantial amount of resources to remodel and improve operations." He urged Walgreens to follow a "gradual, cautious and prudent integration strategy" before radically changing Rite Aid's private-label brands and in-store sales arrangements, or Walgreens risks driving away Rite Aid customers.
Walgreens may also have to sell off hundreds of stores if the U.S. Department of Justice - Antitrust Division or the Federal Trade Administration decides to limit the company from controlling more than 50% of the nation's chain drugstores, Credit Suisse analyst Edward Kelly told investors, Bloomberg reports.
Rite Aid grew rapidly in the 1990s but stalled in the years after second-generation CEO Martin Grass, one of the Harrisburg area's leading corporate citizens, was indicted with his CFO for self-dealing (he was accused of drug supply and real estate deals that benefited himself at his company's expense). The Feds credited a Rite Aid accountant, Joseph Speaker, with uncovering Grass' fraud and reporting it to his superiors. Grass went to prison.