Walgreens Boots Alliance (they own Walgreens drugstores all over the U.S. and Boots in the U.K.) plans to spend $9.4 billion (and take on $7.5 billion in debt) buying out Camp Hill (near Harrisburg)-based Rite Aid stores, one of the nation's largest retail drugstore chains.
Walgreens wants to cut at least $1 billion in expenses out of Rite Aid (which spends around $6.5 billion a year). That means likely cutbacks at the company's Camp Hill headquarters and store closings in many areas (like Philadelphia) where the chains compete -- and customers can expect less competition and higher prices.
It's an "aggressive" deal, Standard & Poor's analyst Jim Henry told clients in a report, warning S&P may downgrade Walgreens' BBB credit rating given the difficulty of making the merger work with the stores' big debt load. Henry noted that two-thirds of Rite Aid's 4,500 stores haven't been renovated in years, and will need "a substantial amount of resources to remodel and improve operations." He urged Walgreens to follow a "gradual, cautious and prudent integration strategy" before radically changing Rite Aid's private-label brands and in-store sales arrangements, or Walgreens risks driving away Rite Aid customers.
Walgreens may also have to sell off hundreds of stores if the U.S. Department of Justice - Antitrust Division or the Federal Trade Administration decides to limit the company from controlling more than 50% of the nation's chain drugstores, Credit Suisse analyst Edward Kelly told investors, Bloomberg reports.
Rite Aid grew rapidly in the 1990s but stalled in the years after second-generation CEO Martin Grass, one of the Harrisburg area's leading corporate citizens, was indicted with his CFO for self-dealing (he was accused of drug supply and real estate deals that benefited himself at his company's expense). The Feds credited a Rite Aid accountant, Joseph Speaker, with uncovering Grass' fraud and reporting it to his superiors. Grass went to prison.