Walgreens Willing to Shed 1,000 Stores on Rite Aid Deal

Walgreens Boots Alliance is willing to unload up to 1,000 stores in order to win regulatory approval of its $17.2 billion deal to acquire Rite Aid, the company said in a securities filing.

The cap represents about 8 percent of the combined company’s 12,700 U.S. stores.

The proposed merger of two of the three largest drugstore chains requires the approval of the Federal Trade Commission. Two influential U.S. senators have called for an examination of whether the deal would raise drug prices for consumers and reduce choice.

“I have fought tirelessly to promote competition in the health sector and I believe the proposed merger of two of the three largest drug store chains in the country raises serious issues,” Sen. Amy Klobuchar of Minnesota, the top Democrat on the Senate Judiciary Committee’s antitrust subcommittee, said in a statement.

Sen. Mike Lee, R-Utah, chairman of the committee, echoed her concerns.

The possible divestitures in the merger agreement would be a concession to concerns that the Rite Aid deal might give Walgreens too much market power.

Adding Rite Aid’s nearly 4,600 stores would give Walgreens more retail locations than any other drugstore chain. The company, based in suburban Chicago, would more than double its presence in a handful of states, including New York, New Jersey, Pennsylvania, Virginia and Michigan.

“With this acquisition, we are accelerating a long-term objective that we knew we needed to address: to strengthen our presence and coverage nationally across the U.S.,” Walgreens CEO Stefano Pessina said on a conference call Wednesday.

But later on the call, he dismissed a suggestion that the merger would give the company more negotiating leverage with health insurers and pharmacy benefit managers, which process prescriptions for large groups.

“We have not done this to increase our negotiating power,” he said.

Pessina said the deal would not reduce competition. He said there are lots of places to fill prescriptions, including mass retailers like Wal-Mart and mail-order pharmacies.

Insurers, pharmacy benefit managers and the government also have squeezed profits on pharmacies by reducing reimbursement rates. Adding more stores would allow Walgreens to reduce costs, Pessina said.

On Wednesday’s call, Pessina said the company has done an antitrust analysis of the proposed merger but declined to speculate on the number of stores Walgreens would be willing to divest. The company expects to complete the transaction in the second half of 2016.