MDN: $950M Deal Would Make Fred’s No. 3 Nationwide
Memphis-based Fred’s Inc. has agreed to buy 865 Rite Aid stores from Walgreens Boots Alliance Inc. and Rite Aid Corp. for $950 million, which will make Fred’s the third-largest drugstore chain nationwide.
The move comes as Deerfield, Ill.-based Walgreens works to close its $9.4 billion purchase of Rite Aid, which would give the combined company 12,000 U.S. locations – several thousand more than the nearest competitor, CVS Health Corp.
Consequently, federal anti-trust regulators have raised concerns about the deal.
Meanwhile, Fred’s is looking to make quick progress on its strategy of growing its health care business.
“This will be a transformative event for Fred’s Pharmacy that will accelerate our health care growth strategy through our acquisition of 865 new stores located in highly attractive markets,” Fred’s CEO Michael K. Bloom said.
The deal must be approved by the Federal Trade Commission and is expected to take several months to close because Walgreens’ proposed acquisition of Rite Aid is still pending. That deal was announced in October 2015.
The Walgreens-Rite Aid deal is expected to give Walgreens negotiating leverage with drug makers and other suppliers while also helping expand its footprint in the Northeast and in Southern California.
With such a large deal, Walgreens’ – the nation’s largest drugstore chain – expected to be forced to sell stores to ease concerns from regulators about competition.
In fact, the company may be required to include more stores in the deal with Fred’s.
Fred’s will continue to operate the newly acquired stores with the Rite Aid banner during a 24-month transition period.
Fred’s runs 647 general merchandise discount stores clustered mainly in the Southeast, and it operates 371 full-service pharmacy departments within its stores. It also runs three specialty pharmacies.
Along with a general cost-cutting push, Fred’s is planning a relocation of its headquarters and is also closing 40 stores next year.
But during the earnings call, Bloom made a reference to a “pending transaction.” Later in the call Bloom made an explicit point about such deals, noting that “acquisition and partnership activity will play an integral role to accelerate our growth strategy.”
Bloom emphasized the company’s continued push to steer resources and attention to the pharmacy side of the business.
While the company has a heritage as a general discount retailer, “personal health care” is the company’s future.