After Walgreens Boots Alliance and Rite Aid announced Thursday that they would abandon their $9.4 billion merger, U.S. antitrust regulators were unusually quick to deflect blame.
Rite Aid’s stock plunged as much as 29% on the news that Walgreens (WBA) would instead buy fewer than half of its drugstores, or 2,186, for about $5.2 billion, and many pointed fingers at the Federal Trade Commission for scuttling the deal.
Yet the FTC, which had not officially challenged the merger, issued a rare public statement on a deal on which it had so far taken no antitrust action. “Before the time the companies would have been free to close their transaction absent Commission action, they voluntarily withdrew” the acquisition proposal, said Tad Lipsky, the acting director of the FTC’s bureau of competition, in the statement. Fortune could find no other instances in which the FTC commented on the withdrawal of a deal which it had not challenged, nor did the agency offer any in response to a request.
Lipsky also noted that the FTC had already “thoroughly investigated the potential impact” Walgreens’ acquisition of Rite Aid (RAD) would have on competition. The agency was expected to discuss the deal at a planned meeting Thursday morning, ahead of a July 7 deadline to either file to block or approve the merger. Instead, the FTC said it would review the new transaction between the pharmacy companies.
Though the deal, which would have created the largest U.S. pharmacy chain, had faced concerns that it would harm competition, there were indications earlier this week that the FTC was finally leaning towards approving it (after Walgreens previously pledged to divest hundreds of Rite Aid stores). Rite Aid stock soared 30% Monday on reports that the FTC’s approval was “more likely than not,” according to M&A trade publication CTFN, which cited a U.S. antitrust official.
Indeed, after intense regulatory opposition left a long trail of broken M&A deals over the past couple of years, the Donald Trump administration has ushered in a new FTC regime that is believed to look more favorably upon major business combinations. Lipsky, who served in the attorney general’s office under Ronald Reagan and joined the FTC shortly after Trump became President, has also struck a friendlier tone towards mergers.
“You can identify this populist theme in the Trump campaign, but that doesn’t mean you go and sue every big company in sight,” Lipsky, then an attorney at Latham & Watkins, told U.S. News & World Report in December. “The purpose of antitrust is not necessarily to prevent firms from succeeding, even when they become very dominant in their industry.”
Still, Walgreens and Rite Aid opted to pull their deal without waiting for the FTC’s final word. In fact, Walgreens, which attributed its decision in part to “changes in the market” since announcing the merger in 2015, may have ended up better off with its new, smaller deal than had the FTC approved the original one in the first place.
“I view this deal as being more attractive than the transaction it replaces,” Walgreens CEO Stefano Pessina said on the company’s earnings call Thursday.