Friday is the Walgreens-Rite Aid merger deadline


DEERFIELD, Ill.  — The day some analysts thought would never come has arrived. On Friday, Jan. 27, the deadline expires for the pending acquisition of Rite Aid by Walgreens Boots Alliance for $9 per share in cash (representing a $17.2 billion deal including the acquired net debt).

What now?

The deal is not likely to be approved by the Federal Trade Commission on Friday. The agency declined to comment in an email to DSN Thursday afternoon, but analysts reporting on the deal generally feel that the agency will not act that quickly. David Balto, a former FTC official, shared with Reuters on Thursday that the agency could take as much as two months to assess the proposed 865 store divestiture from Walgreens to Fred's. "Retail market divestitures are very complex. It's unrealistic to assume that they could get through a divestiture that's this significant in a few weeks," Balto told Reuters, referencing the Dec. 20, 2016, announcement.

Rest assured, Walgreens Boots Alliance and Rite Aid were actively discussing next steps as late as Thursday, according to Walgreens Boots Alliance CEO Stefano Pessina. "These discussions include taking into account anything that is required to gain approval of the transaction," he told Walgreens shareholders during the company's annual meeting in New York Thursday morning.

Specifically regarding the FTC, Pessina offered no comment, however. "The FTC is doing their job and the process is going on and we cannot comment on what the FTC is doing," he said. "The only thing  I can repeat is we are actively engaged to dialogue with the FTC."

What happens if the deal falls through? "Walgreens would be required to pay a $325 million break up fee if the FTC blocks the transaction," noted Ricky Goldwasser, Morgan Stanley equity analyst in a research note published last week. "Additionally, Walgreens would not see the benefit of Rite Aid's national footprint, an incremental benefit (if deal closes) to value proposition for PBMs, especially as pharmacy networks continue to narrow," she wrote. In the note, Goldwasser predicted Walgreens Boots Alliance and Rite Aid would extend the deadline.

What happens if the deal doesn't fall through? If Walgreens and Rite Aid on Friday decide to extend the deadline for the deal a second time, the decision falls back to the FTC. President Donald Trump on Wednesday designated Maureen Ohlhausen as acting chairman of the Federal Trade Commission by a White House order. Ohlhausen will replace former FTC chairman, Edith Ramirez, who recently announced her resignation effective Feb. 10, 2017.

The FTC includes a total of five commissioners appointed by the president and confirmed by the U.S. Senate when operating at full capacity. Currently, however, once Ramirez departs the FTC, it will be down to two commissioners:  acting chairman Ohlhausen, a Republican who started her term in April 2012, and Terrell McSweeny, a democrat who started in April 2014.  The new composition will give President Trump the opportunity to select up to three more commissioners, however no more than three commissioners total can be of the same political party.

While many hold to the belief that a Federal Trade Commission operating under a Republican administration will be "big-business" friendly and therefore more likely to approve the deal, Wolfe Research analyst Scott Mushkin, last week shared with DSN that that might not be the case.

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