Rite Aid (rad) shares took a massive dive on Friday after Bloomberg News reported that prospective suitor Walgreens Boots Alliance (wba) had failed to assuage the U.S. Federal Trade Commission’s anti-trust concerns about the drugstore chains’ proposed merger.
The news agency, citing two anonymous sources, said that Walgreens’ plan announced last month to sell 865 drugstores to tiny regional rival Fred’s (fred) for $950 million hadn’t convince the U.S. Federal Trade Commission’s lawyers to sign off on the deal. The clock is ticking with only one week left before the companies’ deadline to seal the $9.4 billion merger of the No. 2 and 3 U.S. drugstore chains.
When it announced the deal with Fred’s last month, WBA said that if the FTC demanded a larger divestiture, Fred’s would be compelled to buy additional Rite Aid stores.
Rite Aid shares fell as much as 19% to $6.95 on the Bloomberg news before paring those losses. Walgreens declined to comment to Fortune.
The deal would push WBA past CVS Health (cvs) in the drugstore count and would help it expand its prescriptions business. But Bloomberg reported that the FTC is worried that the Fred’s deal wouldn’t do enough to preserve competition. If the deal doesn’t clear antitrust clearance, Walgreens would have to pay Rite Aid a termination fee of $325 million or $650 million “in certain circumstances,” according to a company filing.
The hesitation is not entirely surprising given how the FTC last year pushed back on a number of mega-deals, notably scuttling Staples’ $5.5 billion plan this year to buy office supplies rival Office Depot.
As recently as September, WBA had said it would likely have to divest between 500 and 1,000 stores, more than its previous estimate of 500 locations, to win the FTC’s. Walgreens operates roughly 8,200 U.S. stores and competes most directly with CVS Health, which has a roughly the same amount of stores. Rite Aid has about 5,000 stores. As for Fred’s, the deal would turn it from a small regional player into one of the biggest national players.