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WBA-Rite Aid divestitures could total up to 1,000

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But fewer store sell-offs likely needed for approval, WBA says in SEC filing

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DEERFIELD, Ill. — Walgreens Boots Alliance (WBA) Inc. has indicated that as many as 1,000 stores could be divested to gain regulatory approval for its deal to acquire Rite Aid Corp.

In an investor presentation filed Monday with the Securities and Exchange Commission, WBA said the the $17.2 billion merger agreement allows for up to 1,000 stores to be sold off “if required by regulators.” But the company noted it doesn’t expect that to be the case.

“WBA believes the most likely outcome is divestments of less than half this number,” the company stated in the presentation, which has been posted on the WBA investor relations website.

Under the deal, WBA and Rite Aid also have struck a mutual termination agreement if the merger is not completed by Oct. 27, 2016, which is subject to extension to Jan. 27, 2017 under certain circumstances, according to an 8-K filing that WBA made with the SEC last week.

Rite Aid agreed to pay WBA a $325 million fee if Rite Aid’s board of directors terminates the deal following a change of recommendation for approval of the merger or if it agrees to a “superior proposal” with a third party, the filing said. Under certain circumstances, Rite Aid also would be required to pay WBA up to $45 million for expenses in the event the deal is terminated.

Meanwhile, the SEC filing said, WBA agreed to pay Rite Aid $325 million if the merger is terminated because of a failure to obtain the necessary regulatory approvals. That figure would climb to $650 million if WBA “enters into, consummates or announces certain acquisitions” within eight to 12 months of the merger agreement, which was announced Oct. 27.

WBA has said it expects the acquisition transaction to close in the second half of 2016.

In the investor presentation filed with the SEC this week, WBA said the addition of Rite Aid’s drug store network would complement Walgreens’ store footprint by “filling gaps in the Northeast and Southern California so WBA will cover the entire U.S.”

A combination of Walgreens and Rite Aid would create a drug chain with more than 12,700 stores. Walgreens currently has 8,173 drug stores — including the Duane Reade banner — in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Rite Aid operates 4,561 stores in 31 states and the District of Columbia.

WBA also noted in the presentation that the merger “positions WBA to better serve customers as U.S. health care market continues to evolve.”

Along with cost savings and economies of scale from combining, WBA said, the merger would provide an opportunity to develop the Rite Aid retail product offering by improving the category mix; expanding distribution of WBA exclusive beauty brands such as No7, Soap & Glory, Botanics and Liz Earle; and driving own-brand penetration.


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