Walgreens agrees to buy Rite Aid for $17.2 billion, including debt

Walgreens Boots Alliance Inc. agreed late Tuesday to acquire Rite Aid Corp. for $9.42 billion in cash, in a transaction to further expand the company's role in the distribution of medications in the United States.

The transaction would combine the second- and third-largest drugstore chains in the United States, with a total of about 12,800 locations, helping Walgreens vault past market leader CVS Health Corp.

Rite Aid, based near Harrisburg in Camp Hill, Pa., had nearly 4,600 drugstores in 31 states - including more than 100 in the Philadelphia region - as of the end of February.

The acquisition will add to Walgreens' earnings beginning a full year after completion and will produce more than $1 billion in savings from cost overlaps, the companies said. Including debt, the deal is valued at $17.2 billion, they said.

Rite Aid shares fell 7.8 percent to $7.99 in extended stock trading after the acquisition was announced, below Walgreens' offer of $9 a share, reflecting speculation the transaction will face antitrust scrutiny. They had risen more than 40 percent throughout Tuesday to as high as $8.74 a share, after the Wall Street Journal reported online that the companies were close to a deal.

Rite Aid stock had slumped 29 percent since Sept. 16 after the company lowered profit and revenue forecasts for the year, giving Walgreens an opportunity to make an offer. The price represents a 48 percent premium to Rite Aid's closing price of $6.08 a share on Monday.

Speculation that Walgreens would pursue Rite Aid started in March after billionaire Stefano Pessina, who took over in January as interim CEO at Walgreens after it acquired Alliance Boots, said he envisioned finding his next big deal in the U.S.

In addition to getting more drugstores, the Rite Aid deal gives Walgreens its first foray into the business of managing drug benefits for insurers and employers, an area where rival CVS is a leader. Rite Aid entered that business by acquiring Envision Pharmaceutical Services Inc. for about $2 billion this year.

If Walgreens aims to get bigger in drug-benefit management, it could use EnvisionRX to acquire other small competitors to build that business, said Ross Muken, an analyst at Evercore ISI who advises holding the shares.

Walgreens shares were little changed in extended trading after rising 6.4 percent to $95.16 at the close.

Rite Aid CEO John Standley is eligible to receive $23.4 million if he is terminated after the deal, according to data compiled by Bloomberg based on Walgreens' offer price per share.