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FTC reportedly may sue to block WBA-Rite Aid deal

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Rite Aid saw its stock price sink to a 52-week low on Wednesday after a report that the Federal Trade Commission may challenge the drug chain’s acquisition by larger rival Walgreens Boots Alliance.

Citing trade publication The Capital Forum, Bloomberg reported that the FTC was mulling a lawsuit to block the deal. Rite Aid’s share price closed at $4.08 on Wednesday after opening at $4.49. Intraday trading saw the price swing between $4.05 — marking the stock’s 52-week low — and $4.55.

On Jan. 30, WBA and Rite Aid had extended the end date for the agreement to July 31, as well as lowered the purchase price and raised the number of stores that could be divested from up to 1,000 to as much as 1,200. Fred’s Inc. has agreed to buy 865 or more Rite Aid stores in connection with the merger.

The revised price for the WBA-Rite Aid deal is now at $6.50 to $7.00 per share, which would lower the cash portion of the transaction to about $6.84 billion to $7.37 billion, plus the assumption of Rite Aid’s debt. The original acquisition offer on Oct. 27, 2015, was for $9 per share and the assumption of over $7 billion in net debt, for a total deal value of $17.2 billion.

The store divestitures will affect the ultimate share price for the deal. The price will be $7.00 per share if 1,000 stores or fewer are divested and $6.50 per share if 1,200 stores are needed for divestiture. If the required divestitures fall between 1,000 and 1,200 stores, the price per share will be adjusted pro rata.

Investor website TheStreet.com noted Wednesday that a recent action by the FTC could be a bad sign for the Walgreens-Rite Aid merger in terms of the agreement to divest stores to Fred’s.

Earlier this month, the FTC said it was seeking comment on a proposed sale by private equity firm Sycamore Partners II LP of 323 Family Dollar Stores it bought in connection with Dollar Tree’s acquisition of Family Dollar Stores in 2015. “In short, the FTC’s plan to allow Family Dollar and Dollar Tree to merge, and Sycamore Partners, a relatively small operator, to pick up the divestitures, has failed,” TheStreet said.


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