With Rite Aid stores under its wings, Walgreens prepares to take down rivals

Upping its ante against its rivals in the medical and pharma sector, Walgreens has finally completed its acquisition of Rite Aid’s (RAD) stores for $4.4billion. The deal brings 1,932 Rite Aid stores as well as three distribution centers under the umbrella of Walgreens, which is owned by Walgreens Boots Alliance (WBA).

Though Walgreens initially wanted to take up all of its around 4500 stores, it later had to withdraw from the plan due to anti-trust issues. The rest of the Rite Aid stores, including EnvisionRx PBM, will now go to grocery store giant Albertsons.

Rite Aid plans to use the cash received to repay its outstanding secured loans of approx $970 million. However, the stores will not be completely incorporated into Walgreens till 2020. As this mega-deal is complete, Walgreens will now commence its plan to shutter almost 600 Rite Aid stores — mainly the ones located within a mile of another Rite Aid/Walgreens store.

The deal was aimed at helping Walgreens in clawing out some market share out of its rivals, which are already on the consolidation mode. Pressure to outdo its rivals intensified last year when CVS Health (CVS), which has close to 9,700 retail locations, scooped in Aetna (AET) for $69 billion and Cigna (CI) struck a deal to buy PMB giant Express Scripts (ESRX) for $67 billion.  Adding to this, Amazon (AMZN) is gradually building a niche for itself in the medical and pharma sector.

Meanwhile, the acquisition of Rite Aid stores boosted Walgreens’ performance during the recent second quarter. The company’s earnings rose 27% to $1.73 per share and revenue jumped 12.1% to $33.02 billion. In fact, this quarter’s sales growth was the highest in the past eight quarters. Same-sales stores rose 2.4% and pharmacy sales rose 5.1%.

The positive results made Walgreens raise its guidance for 2018. The company now sees its earnings to be about $5.58 to $6.05 per share. Walgreens shares closed 2.5% higher at $67.59 on Wednesday.