BY Richard Summerfield
The pharmaceutical sector has seen considerable mergers & acquisitions activity in 2015, with more than $520bn worth of deals completed this year, according to Dealogic. As 2016 creeps into view, that activity shows no signs of slowing. This week, global pharmacy powerhouse Walgreens Boots Alliance announced it had agreed a deal to acquire its US rival Rite Aid in a $17.2bn all cash deal.
Though the deal has been approved by the boards of both companies, the transaction is still subject to the endorsement of the shareholders of Wallgreens and Rite Aid, as well as other customary closing conditions, including winning the approval of the US Federal Trade Commission.
The deal, expected to close in the second half of 2016, will create one of the largest pharmaceutical companies in the world, combining of the US’ second and third largest pharmacy chains and creating a company with more than 12,800 locations across the country. Once the deal has been completed, Rite Aid will be a fully owned subsidiary of Wallgreens, and continue to operate under its own name going forward.
Wallgreens offered $9 per share in cash for a total enterprise value of approximately $17.2bn, including the assumption of existing net debt. The purchase price represents a premium of 48 percent to the closing price per share on 26 October 2015, the day before the agreement was signed.
“Today’s announcement is another step in Walgreens Boots Alliance’s global development and continues our profitable growth strategy. In both mature and newer markets across the world, our approach is to advance and broaden the delivery of retail health, wellbeing and beauty products and services,” said Walgreens Boots Alliance executive vice chairman and chief executive, Stefano Pessina.
“This combination will further strengthen our commitment to making quality healthcare accessible to more customers and patients. Our complementary retail pharmacy footprints in the US will create an even better network, with more health and wellness solutions available in stores and online," he added.
Walgreens will finance the transaction through a combination of existing cash, assumption of existing Rite Aid debt and issuance of new debt. Furthermore, the company expects to realise synergies in excess of $1bn as a result of its acquisition of Rite Aid.
“Joining together with Walgreens Boots Alliance will enhance our ability to meet the health and wellness needs of Rite Aid’s customers while also delivering significant value to our shareholders,” said Rite Aid chairman and chief executive, John Standley.
He continued: “This transaction is a testament to the hard work of all our associates to deliver a higher level of care to the patients and communities we serve. Together with Walgreens Boots Alliance, the Rite Aid team can continue to build upon this great work through access to increased capital that will enhance our store base and expand opportunities as part of the first global pharmacy-led, health and wellbeing enterprise.”