Walgreens could be killing its competition and leaving Rite Aid and Fred’s in shackles. The company is all set to buy a stake in Rite Aid, the number 3. pharma company. Even though Rite Aid is a very small competitor for Walgreens, the number 2 pharma giant could be making a bigger leap towards industry domination.
Rite Aid Deal Gets Watered Down
Walgreens Boots Alliance Inc. was all set to merge its business with Rite Aid. However, due to US regulators’ antitrust issues, the deal has now been diluted. The company unveiled on Thursday, that it will now be buying less than 50 percent of Rite Aid. Walgreens will pay $5.18 billion in cash for the new deal. However, regulators still have to review the deal. Antitrust experts suggest that the new deal still won’t make the cut. Such deals make markets more concentrated, eliminating competition.
The Federal Trade Commission may face challenges as well, considering that there are only two commissioners on board. Many important positions in various federal commissions lie vacant after the Presidential elections. It is also to be noted that the number of deals have slowed down in this year, even though business friendly Republicans are now handling the administration.
How will the Markets Change After the Walgreens Deal?
Rite Aid does present a very small competition to Walgreens. The company is debt-ridden and facing problems in competing with bigger rivals. However, if the deal is finalized, the company could get a new life. It would have enough cash to pay its debt and start afresh. A complete takeover would have killed the company. Now Rite Aid is getting a second chance to start afresh. The biggest problem with the company is lack of cash and debt. Its rivals are deep pocketed. A new strategy will be essential to continue making an impact in the market.
A smaller pharmacy chain, Fred’s Inc. could have a tougher time in the market than Rite Aid. Fred’s could have gained about 1,200 stores under the previous Walgreens-Rite Aid deal. However, now the company is left with tougher competition as Rite Aid tries to recover with more cash in hand. The shares of both companies fell sharply after the new deal was announced. Rite Aid shares fell by 30 percent while Fred’s shares went down by 27 percent after the announcement. Both the companies have registered the biggest ever fall since 2007 and 1992 IPO respectively.