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Walgreens (WBA) to Divest More Stores to Close Rite Aid Deal

Zacks Equity Research

Walgreens Boots Alliance, Inc. WBA, the world’s leading pharmacy-led health and well-being enterprise recently provided an update to its proposed takeover of the U.S. retail pharmacy chain, Rite Aid Corporation RAD. Per the requirements stated by the U.S. Federal Trade Commission (FTC), for the acquisition to be closed, Walgreens now needs to divest between 500 and 1,000 drug stores.

In fact, this marks a significant increase in the divestment number from the earlier announced figure of 500 stores. While currently exploring these potential divestiture remedies, the company continues to expect to complete the acquisition in second-half 2016. We note that on Feb 4, 2016, Rite Aid’s shareholders approved the transaction, after the FTC asked for a second request from both the companies.

This colossal takeover bid of $17.3 billion (total enterprise value including acquired net debt) was first announced in Oct 2015. This mega acquisition will allow Walgreens Boots to further expand its business realm in the U.S. in the long term, where it already enjoys the position of the largest retail drug store giant.

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Management expects this buyout to accelerate Walgreens Boots’ strategy by completing its network; providing a larger and more comprehensive portfolio, with which it will deploy more knowledge and skill; creating a more comprehensive and strong platform for the development of the company’s brand presence and overall future growth of its business.

The transaction should be accretive to Walgreens Boots’ adjusted earnings per share in its first full year after completion. Upon completion of the merger, Rite Aid will be a wholly owned subsidiary of Walgreens Boots. The synergies and benefits from this transaction will be accounted for almost entirely within Walgreens Boots’ U.S. Retail Pharmacy division.

Walgreens Boots currently carries a Zacks Rank #3 (Hold).

Key Picks in the Sector

A couple of better-ranked stocks in the medical sector are NuVasive, Inc. NUVA and Quidel Corp. QDEL. Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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NUVASIVE INC (NUVA): Free Stock Analysis Report
 
RITE AID CORP (RAD): Free Stock Analysis Report
 
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