Walgreens, Rite Aid Got Past Regulators With No Vote

By Eleanor Tyler

Walgreens Boots Alliance Inc.'s patience in sticking with its bid to acquire Rite Aid Corp. paid off now that it has the green light to buy about half of the Rite Aid chain.

In the end, despite a 22-month-long review, the Federal Trade Commission didn’t vote on the deal even though one of the two sitting FTC commissioners, Democrat Terrell McSweeny, still has concerns about the transaction. McSweeny said Sept. 19 that she wanted the investigation to continue. Acting FTC Chairman Maureen Ohlhausen said in a separate statement that McSweeny’s concerns are unfounded.

McSweeny’s opposition marks the first time the two commissioners have publicly disagreed since President Donald Trump took office. Ohlhausen and McSweeny have presented a united front this year faced with an unusual situation in which three commissioner seats are vacant. The only other public issue on which they disagree is the FTC’s lawsuit against Qualcomm Inc., which was filed in the last days of the Obama administration and opposed by then-Commissioner Ohlhausen.

Their disagreement about the Walgreens-Rite Aid deal didn’t make a difference because a commission vote wasn’t necessary in this situation, FTC spokeswoman Betsy Lordan said. Walgreens and Rite Aid got their deal through because the FTC staff didn’t recommend that the agency seek more information. Such a request would have extended a 30-day waiting period on the deal. Instead, the waiting period expired on Sept. 18.

Amended Proposal

The two companies announced Sept. 19 that they are going forward with the third iteration of a transaction that started out two years ago as a straight merger proposal. They reworked that deal this summer when it became clear regulators might block it.

A Walgreens spokesman told Bloomberg BNA that the company recently added a formal amendment its August proposal to buy 2,186 Rite Aid stores. It will now purchase 1,932 stores for $4.375 billion. Rite Aid will begin transferring those stores, mostly in the Northeast and the South, in October and continue through spring of next year, the spokesman said.

The FTC, meanwhile, has spent almost two years reviewing information about the companies and the markets in which they compete. Ohlhausen said the latest version of the transaction “is limited to areas where competition between the two firms is not significant.”

McSweeny protested, saying the transaction would be a “substantial reduction” in Rite Aid’s geographic footprint and leave “two or fewer major pharmacy chains” in many areas.

Ohlhausen responded that it is unlikely that more review “will somehow uncover additional, different facts overlooked during the staff’s exhaustive, 22-month investigation.”

Staff Permits Deal

At the FTC, the choice to let the waiting period expire or to seek a second request on Walgreens-Rite Aid was made by the staff of the Bureau of Competition. The FTC, currently composed of only two members instead of the usual five, doesn’t vote on those steps.

If the staff decides that the agency should oppose a merger, it recommends action to the commission, which then votes on the decision. Consent agreements between the FTC and merging parties also get a commission vote. Neither of those things happened with Walgreens and Rite Aid

McSweeny said she is concerned about how the smaller Rite Aid will negotiate for generic drugs. “A Rite Aid with roughly 2,000 fewer stores could face higher generic drug acquisition costs in the future,” she said. Rite Aid has fixed costs on generic drugs through an agreement with Walgreens for 10 years, but she sees that as a Band Aid for the underlying competitive problems that Rite Aid will face.

But McSweeney’s reservations aren’t a deal-breaker because in the end she didn’t get to vote. Her statement does, however, provide a window into concerns that caused Walgreens and Rite Aid to abandon their initial merger agreement and shrink their aspirations.

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

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