NEW YORK — The Federal Trade Commission is readying a lawsuit to block the Walgreens-Rite Aid merger deal, according to published reports.
Citing policy news service Capital Forum, which analyzes the antitrust review of mergers and acquisitions, Investors Business Daily said on Friday that the FTC was “preparing advice” to take action against the transaction, in which Walgreens Boots Alliance (WBA) plans to buy Rite Aid Corp. for about $15 billion, including the assumption of Rite Aid’s debt.
Investor website Seeking Alpha, also citing Capital Forum, reported on Friday that the FTC remains concerned about the competitive viability of Fred’s Inc., which has agreed to buy up to 1,200 Rite Aid stores slated for divestiture for WBA to gain antitrust approval for the acquisition. That figure would be double the number of stores currently operated by Fred’s, which has continued to report poor financial results.
The news sank Rite Aid shares on Friday, falling by double-digits to as low as $2.93 as of afternoon trading after opening the day at $3.53. WBA shares, meanwhile, dipped to a low of $81.00 after opening at $81.54 on Friday. Shares of Fred’s, whose deal to by the Rite Aid stores hinges on the clearance of the WBA-Rite Aid transactions, were around the opening price of $11.33 as of Friday afternoon trading after declining to a low of $10.60.
Earlier this month, Rite Aid and Walgreens had sent signals that their merger might not get the green light from the FTC.
In a June 5 memo to employees, Rite Aid chairman and chief executive officer John Standley and president and CEO of stores Ken Martindale appeared to acknowledge that the company’s acquisition by may not receive FDA clearance. “We remain actively engaged in discussions with the FTC to attempt to gain regulatory approval, and there can be no guarantee that the merger will be approved. However, we expect a decision sometime soon,” they said in the memo, which was filed with the Securities and Exchange Commission.
Meanwhile, WBA stated in a June 2 filing with the SEC that it would redeem $3.5 billion in notes from a debt offering, announced in May 2016, made to help fund the Rite Aid acquisition. “The company is required, because the pending acquisition of Rite Aid Corp. was not consummated on or before June 1, 2017 (the first anniversary of the issuance of the notes), to redeem all of the notes,” the filing read.
WBA added in the filing that it will able to finance the acquisition despite the redemption of the notes.
“The transaction remains subject to the expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, approval by the holders of Rite Aid’s common stock and other closing conditions,” WBA said in the 8-K filing, “and there can be no assurance that these conditions to closing will be satisfied.”
WBA and Rite Aid announced the acquisition deal, originally valued at a total of $17.2 billion, including debt, almost 18 months ago. The companies amended the merger agreement on Jan. 30, reducing the purchase price, extending the deal end date to July 31 and raising the number of potential store divestitures from around 1,000 to as many as 1,200. The revision lowered the cash portion of the transaction to between $6.84 billion and $7.37 billion, depending on the final number of stores divested.