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Walgreens May Have to Shed 1,000 Stores to Seal Rite Aid Deal

November 2, 2015, 8:19 PM UTC
Inside Rite Aid Ahead of Earnings Reports
A customer enters a Rite Aid Corp. store in Mechanicsburg, Pennsylvania, U.S. on Thursday, Dec. 15, 2011. Rite Aid Corp., the third-largest U.S. drugstore chain, is scheduled to report third quarter earnings results on Dec. 15 following the close of U.S. financial markets. Photographer: Paul Taggart/Bloomberg via Getty Images
Photograph by Paul Taggart — Bloomberg/Getty Images

Walgreens Boots Alliance (WBA) is willing to sell off up to 1,000 stores to win regulatory approval for its planned $17.2 billion acquisition of Rite Aid (RAD).

The deal, announced last week, would created a drugstore behemoth with 12,600 U.S. retail locations, easily dwarfing the 8,000 locations of CVS Health’s (CVS) network. If Walgreens did shut 1,000 of its own or Rite Aid’s stores, that would be 8% of its total store count. (CVS will operate nearly 10,000 locations once its acquisition of Target’s (TGT) pharmacy is completed.) However, in a presentation to investors Walgreens filed with U.S. regulators on Monday, the company said it did not expect the closings to exceed half that amount, or 500 stores.

It would be challenging for Walgreens to find buyers for those stores. After Walgreens, CVS, and Rite Aid, there are no national players in what is a fragmented retail drugstore market. And selling hundreds of stores to chains could become labor intensive if Walgreens has to deal with small, local buyers.

According to Bloomberg Intelligence, there are some 70,000 pharmacies in the U.S., and Walgreens, CVS, and Rite Aid control a third of the market. And given that Rite Aid is more concentrated in some regions while Walgreens is truly national, antitrust regulators are likely to look at divestitures on a market by market basis.

Walgreens said it expects its acquisition of Rite Aid to close sometime in the second half of 2016.