Walgreens Boots Alliance (WBA, Financial) and Rite Aid Corp. (RAD, Financial) announced on Monday they are reducing the price and postponing the close of their definitive merger agreement.
After the announcement, Rite Aid shares fell 15% in premarket trading while Walgreens shares rose 0.3%.
In October 2015, Illinois-based Walgreens agreed to buy Pennsylvania-based Rite Aid for $9.4 billion, a rate of $9 per share. Under the new amendment, both drugstore chain operators agreed to reduce the price to $6.50 to $7 per share. The total value of the transaction is now in the range of $6.8 billion to $7.4 billion.
The decision was made after antitrust regulators voiced concern over the advantages the large combined company might have over competitors.
In response, the companies sold 865 Rite Aid stores to regional drugstore chain Fred’s Inc. (FRED, Financial) for $950 million in December.
Walgreens also consented to divest up to 1,200 Rite Aid stores and other related assets if required to gain regulatory approval, an increase from the original deal’s 1,000 stores.
The aforementioned price paid per share will depend on the number of stores divested. For instance, the price will be $7 per share if the company divests 1,000 stores or less and will be $6.50 per share if 1,200 stores are divested. If the number of divested stores falls between these figures, there will be a pro-rata adjustment of the price.
The original deal expired on Jan. 27. The new deal expires at the end of July.
Among the gurus invested in Walgreens, the Vanguard Health Care Fund (Trades, Portfolio) holds the largest position with 0.75% of outstanding shares. This represents 1.4% of its total assets managed. In total, 16 gurus hold positions in the company.
David Einhorn (Trades, Portfolio) holds the largest position in Rite Aid with 1.3% of outstanding shares, which represents 1.9% of his total assets managed. In all, eight gurus hold positions.
Walgreens has a market cap of $88.05 billion; its shares were trading around $81.57 on Monday with a price-earnings (P/E) ratio of 21.6, a price-book (P/B) ratio of 3 and a price-sales (P/S) ratio of 0.8.
Rite Aid has a market cap of $6.2 billion; its shares were trading around $5.85 on Monday with a P/E ratio of 73.8, a P/B ratio of 9.6 and a P/S ratio of 0.2.
Disclosure: I do not own any stocks mentioned in the article.
Start a free 7-day trial of Premium Membership to GuruFocus.
