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Antitrust analysts see Walgreens Boots Alliance Inc.’s decision to rework an acquisition agreement with rival Rite Aid Corp. as an important win for the Federal Trade Commission, which succeeded at stopping the original deal without a high-stakes agency vote.
“The FTC stood firm and blocked a deal and will now be able to boast about a win,” Stephen Calkins, an antitrust law professor at Wayne State University and a former general counsel at the FTC, told Bloomberg BNA.
This view of the FTC as a strong agency is a helpful antidote to worries among competition advocates that the truncated commission won’t be fully functional under the Trump administration. It has only an acting chairman and a Democratic commissioner, and there have been nothing but rumors of possible nominees to permanently lead the agency.
But the Walgreens-Rite Aid revised deal combined with the FTC’s recent decision to challenge a proposed tie-up between rival fantasy sports websites DraftKings Inc. and FanDuel Inc., suggest the agency continues to take its merger enforcement job seriously under Trump, Calkins said.
Diana Moss, president of the competition advocacy group American Antitrust Institute, also applauded how the FTC handled the case. She said it reflects a trend of “effective” enforcement in recent years, including the Justice Department’s 2016 lawsuit challenging Halliburton Co.’s bid to acquire rival oil-services firm Baker Hughes Inc. That deal was ultimately abandoned.
“Walgreens-Rite Aid joins the growing list of mega-deals that couldn’t pass muster under antitrust scrutiny,” Moss told Bloomberg BNA. “It’s another deal that was too anticompetitive to fix.”
Walgreens and Rite Aid announced June 29 that they had decided to end their original deal in which Walgreens would have bought Rite Aid for as much as $7.37 billion. Instead, Walgreens now plans to pay $5.18 billion to buy 2,186 stores, leaving Rite Aid as a regional chain.
Before pulling the plug on their original plan, the companies tried for months to resolve competition concerns raised by FTC staff and eventually took steps to force a commission vote by July 7. Deciding what to do with this deal was perhaps one of the most difficult tests yet facing the FTC under President Donald Trump.
Rite Aid issued a statement saying that it received feedback from the FTC “that led the company to believe that the parties would not have obtained FTC clearance to consummate the merger.”
The revised agreement still faces FTC scrutiny, but it has a better chance of getting through, according to Calkins.
John Kwoka, an economics professor at Northeastern University, said there appeared to be strong support within the agency — including from senior staff appointed since Trump took office — for blocking Walgreens-Rite Aid rather than requiring the merger to be “fixed” by selling assets in key markets. The agency has become wary of trying to fix big retail mergers through divestitures after failed attempts in recent years, he said.
Kwoka said the enforcement dynamic could change with a full commission. The agency currently has three vacant commission seats. “It’s hard to know if a full complement of yet-to-be appointed commissioners would have made a difference” in the Walgreens-Rite Aid case, he told Bloomberg BNA.
Any agency action on the deal would have required consensus between the FTC’s two sitting commissioners, Acting Chairman Maureen Ohlhausen, a Republican, and Terrell McSweeny, a Democrat.
Ohlhausen, who’s a potential long-term FTC chief, has emphasized “regulatory humility.” But she’s also under enormous pressure from public interest groups and some members of Congress to be vigilant on competition issues, particularly when it comes to mega-mergers.
McSweeny also has said she’s closely watching signs of declining competition across the U.S. economy and would be concerned about an enforcement decline.
Agency staff “thoroughly” investigated the potential impact of the original Walgreens-Rite Aid deal and evaluated a number of divestiture proposals put forward by the parties, according to Tad Lipsky, the FTC’s acting competition bureau director, who left his post on July 3.
Besides the FTC, Walgreens is the other big winner in the situation, according to Calkins. Assuming the new deal goes through, Walgreens will still be in a much better position to compete with CVS Health Corp., currently the nation’s leading pharmacy chain.
Rite Aid emerges as the big loser, Calkins said. “Not only has it lost a deal on which it had been counting, but if the revised deal goes through, the company will face a bleak future in which, with half its former size, it will have to compete with two dominant pharmacy chains,” he said.
Rite Aid, however, has billed the new arrangement as good for its business as a regional chain.
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