National Drugstore Chains Scrap Merger, Announce New Plan

drugstore, Naperville business law attorneyAs you are probably aware, there are several federal agencies that are tasked with ensuring that the American marketplace remains open and competitive. The most commonly known of these is the Federal Trade Commission (FTC). When major companies are considering mergers, acquisitions, or large-scale purchases, they must first seek approval from FTC to verify that their plans will unduly affect the American consumer. If the FTC moves to stop a proposal, the company in question may look for an alternate strategy for increasing its standing and profitability.

During my career as a business law attorney, I have seen the FTC weigh in on many proposed mergers and acquisitions. One of the most recent involves two national drugstore chains and sentiments from the FTC to discourage an intended merger.

Walgreens Abandons Rite Aid Merger

This week, the well-known drugstore chain Walgreens announced that it was backing off of a plan to buy rival Rite Aid Corp, after failing to secure approval from the FTC over antitrust concerns. According to former FTC policy director David Balto, “This merger would have led to high prices. It’s important to preserve three national competitors.” The competitors he was referring to are Walgreens, CVS, and Rite Aid, though Rite Aid trails the other two significantly in most markets.

FTC officials say that the agency did not formally take action against the proposed deal but expressed its concern, and the parties “voluntarily withdrew” their plan. Reports indicate that Walgreens must pay Rite Aid a breakup fee of $325 million in accordance with a provision that is customary in larger merger deals.

A Second Chance

Walgreens is far from done, however, as the company also announced a new plan to buy about half of Rite Aid’s stores outright. The most recent proposal would see Rite Aid receiving more than $5 billion for nearly 2,200 U.S. locations, allowing Walgreens to claim the top spot for number of stores from CVS. Rite Aid shares tumbled almost 30 percent as a result of the announcement while Walgreens stock jumped almost 2 percent.

The proposed purchase deal will still be subject to regulatory scrutiny, but antitrust experts say that the FTC will have limited power to stop it. Those close to the deal say that the companies understand the FTC’s concerns and that the new proposal is likely structured to get around those issues.

Considering a Merger or Acquisition?

If your company is poised to merge with or acquire a competitor, there are many factors you will need to take into account. An experienced Naperville business law attorney can help. Contact our office and get the skilled guidance you need from a team committed to protecting your best interests. Call 630-756-1160 for a confidential consultation.

 

Sources:

Reuters

USA Today