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Rite Aid and Walgreen's Merger Opportunity


RAD, Rite Aid Walgreens Merger

We explain the potential merger of Rite Aid (RAD) and Walgreens (WBA).

Released on Sunday, February 12, 2017, 9:30 AM ET
by Email Russ UrbanContact SpeculatingStocks

Pittsburgh, PA (SpeculatingStocks) - The FTC has been hard on big companies wanting to merge lately with a few insurance companies getting their merger requests rejected. However, Rite Aid (NYSE:RAD) and Walgreens Boots Alliance, Inc. (NASDAQ:WBA) may make it through scrutiny by the July 31, 2017 extension.

First off, this is a potential merger between a $90 billion company in Walgreens and a $6 billion company in Rite Aid. It would create a larger company of course, but Walgreens is already a $90 billion company and with some concessions with the FTC the two companies are looking to find a way to make the merger happen.

To make it past the scrutiny of the FTC, Walgreens is looking to divest from 1,000 to 1,200 Rite Aid stores. If WBA divests from 1,000 Rite Aid stores then it would buy RAD for $7 a share. If WBA divests from 1,200 Rite Aid stores, then it would buy RAD for $6.50. Both of these scenarios are at a decent premium to RAD's stock price of $5.61 at the time of the writing of this article. With August RAD option calls, more of a premium could be made by the nimble investor.

As of the end of 2015, Walgreens had 8,230 pharmacies, while Rite Aid has 4,600 stores currently. After the merger, Walgreens would have about a 19% market share of the pharmacy store market. Competitor, CVS Health Corporation (NYSE:CVS) currently has 16% pharmacy market share. CVS has a market cap of $83.75 billion. Looking at this landscape of the pharmacy industry, it's not out of the realm of the possibility at all for this merger to actually make it through.

CVS would still have a fair chance to compete with Walgreens after a Rite Aid / Walgreens merger. Each investor considering RAD would have to consider their risk appetite as the FTC has been stringent as of late under the new administration. RAD dropped from over $8.50 to as low as $5.20 due to fears that the merger may not be given a go by the FTC, but Walgreens isn't giving up and the key to approval seems to be Walgreen divestment from more Rite Aid stores, which Walgreen's looks willing to do.

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⇒ About the Author of this News Article:

Russ Urban has been following the stock market for over 17 years and holds a Bachelor's Degree in Finance. From a young age, he watched CNBC with a keen eye and became obsessed with the market and technology. Russ Urban has written hundreds of stock articles and stock picks through the years since he founded, Inc. in 2006 and holds strong faith in the power of the markets and capitalism.

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