Walgreens Will Close 600 Rite Aid Locations in Megadeal

On Wednesday, Walgreens Boots Alliance (WBA) announced that it would shutter as many as 600 of the more than 1,932 Rite Aid stores it will purchase in a deal for $4.37 billion in cash that is scheduled to close during the spring of 2018.

The company planned in 2015 to buy its smaller rival in its entirety that included 4,500 stores, but due to antitrust problems from regulators in June, Walgreens opted to downsize its purchase in September. Walgreens will also be closing some of its namesake stores as well.

The locations that are to be shuttered were picked due to them overlapping with other Walgreens or Rite Aid locations, said executives.

The Co-COO at Walgreens Boots Alliance, Alexander Gourlay said that the overwhelming majority of stores being closed are less than one mile from another location the company will own going forward.

The overall closing of store locations will take as much as 18 months to complete and will begin shortly after the closing of the deal. Walgreens is expecting to pay as much as $500 million in additional capital to convert the stores that it is purchasing and will be keeping.

It is obvious why Walgreens is reducing its overlap; comparable sales were down 2.1% in its recently ended quarter, so there is no need for more stores of its own competing with one another.

Its biggest rival CVS Health, with close to 9,700 locations, has also been struggling with dropping comparable sales for front of store products. Both of the chains’ businesses of prescriptions on the other hand are expanding.

Following the closing of the deal, Walgreens will have approximately the same number of stores as does CVS, which will be up from its current 8,000.

WBA, which operates other stores in Europe through its Boots name, announced sales at its U.S. Walgreens locations increased by 12.6% during its August 31 ending fiscal fourth quarter.

The company said it filled over 250.2 million prescriptions which represented an increase of 9%. It also announced that it is expecting adjusted earnings for 2018 to be between $5.40 and $5.70 a share, which is better than estimates by analysts of $5.47.

Revenue for the drugstore chain increased by 5.3% ending the quarter at $30.15 billion, which also beat forecasts on Wall Street.

Its profit was hit by a termination fee of $325 million paid to Rite Aid for the original merger that never took place.

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