FTC Remains Doubtful About Walgreens' Acquisition of Rite Aid

The existing chair of the Federal Trade Commission (FTC) would like to make a decision on the proposed merger of Walgreens and Rite Aid pharmacies before she leaves office—but the fate of the merger remains unclear.

Walgreens agreed to buy Rite Aid for a total transaction that would exceed $17.2 billion, which would create a near monopoly for the chain by giving it control over 12,700 stores nationwide, and would position CVS in a distant second place with 7800 stores.

FTC scrutiny of the deal was definitely expected, with critics worried the merger would increase costs for consumers. To ease concerns, Walgreens announced in late 2016 that it would divest 865 Rite Aid stores to another smaller chain, Fred’s Inc, for $950 million, if the merger was approved. However, the FTC has not approved Fred’s for this deal, which currently owns fewer stores than what Walgreens is proposing to add to its plate. Would the 648-store chain be able to create a comprehensive plan for the new stores?

A bigger concern for the FTC is preserving market competition, and bringing Fred’s into the picture may not be sufficient to convince the FTC, reports Bloomberg. On an earnings call in early January, Stefano Pessina, CEO of Walgreens, told analysts that the company is striving to get the deal approved.

“We still have to complete our work with FTC and as we have seen these things can take some time, as the FTC are scrupulous in ensuring that they consider everything properly and fully,” Pessina said.

As the January 27 deadline—which has already seen an extension from the previous deadline of October 27, 2016—for closing the contract draws near, it’s not clear if FTC chairwoman Edith Ramirez has completed her review of the deal. In case it falls through, Rite Aid would receive $325 million or $650 million from Walgreens, “in certain circumstances.”

Ramirez has a track record of preventing market dominance—in the past, she prevented Staples from buying Office Depot and Sysco from buying US Foods.