The proposed merger between Walgreens Boots Alliance Inc (NASDAQ:WBA) and Rite Aid Corporation (NYSE:RAD) hangs in the balance according to media reports. Federal Trade Commission regulators have reportedly heightened scrutiny on the merger, a move that could drag the process longer than initially thought.
Divestitures of Stores
One of the reasons why regulators have heightened scrutiny is the fact that the merger involves a No 2 drug store giant and No 3. A merger of the sought will result in a combined company that is bigger than CVS Health Corp (NYSE:CVS), enough to have a huge say on drug prices. The likelihood of regulators blocking the merger has thus increased, given the amount of power the combined company will wield in the business.
Unconcerned with the sentiments, Walgreens has already opened talks with the FTC as it seeks to accelerate the completion of the $17 billion takeover. Initials talks are believed to have centered on how many of the combined 13,000 stores it will have to sell to get the much-needed approval.
Auctioning of stores in areas with high volume Walgreen and Rite Aid stores is reportedly taking place in the background according to people familiar with the matter. Talk about divestitures had fueled talk that the deal was close to completion.
Growing investor Concerns
Reports that the FTC has heightened scrutiny has now resulted in a spike in skepticism about the deal’s prospects. Investors have also started to react to a possible lengthy review process seen by Rite Aid tanking in the market by 2.05%. The lengthy review process has already had its first casualty, the FTC having blocked a proposed merger pitying Staples, Inc. (NASDAQ:SPLS) and Office Depot Inc (NASDAQ:ODP).
Walgreens Boots Alliance Inc (NASDAQ:WBA) first announced its intention to acquire Rite Aid Corporation (NYSE:RAD) for $9 a share in October 2015. The buyout price represented a 48% premium to the drug store closing price at the time. The stock has since dropped to the $6.93 a share, on growing concerns of the FTC approving the deal