Rite Aid secures clearance to sell 1,932 stores, assets for $4.375B to Walgreens Boots Alliance

Rite Aid Corporation (RAD) announced that it has secured regulatory clearance for an amended and restated asset purchase agreement with Walgreens Boots Alliance (WBA) whereby WBA will purchase 1,932 stores, three distribution centers and related inventory from Rite Aid for an all-cash purchase price of $4.375B on a cash-free, debt-free basis.

Rite Aid also has the option to purchase generic drugs that are sourced through an affiliate of WBA at a cost substantially equivalent to Walgreens for a period of 10 years.

The Hart-Scott-Rodino waiting period expired for the proposed transaction.

Under the amended and restated agreement, Rite Aid will retain approximately 250 additional stores as compared to the prior agreement announced between Rite Aid and WBA in June 2017, resulting in a reduction in the transaction sale price.

The decision to retain these stores follows discussions between Rite Aid and WBA, as well as the U.S. Federal Trade Commission.

The 1,932 stores included in the amended agreement are primarily located in the Northeast and Southern regions of the United States. The three distribution centers are located in Dayville, Conn., Philadelphia and Spartanburg, S.C. Under the terms of the amended agreement, Rite Aid will provide certain transition services to WBA for up to three years after the closing of the transaction.

The transaction has been approved by the Boards of Directors of Rite Aid and WBA and is still subject to other customary conditions.

Approval of the transaction does not require a shareholder vote. Rite Aid and WBA expect to transfer ownership of the stores in phases beginning in October 2017, with the goal of completing the transfer of all stores in spring of 2018.

Rite Aid expects to use a substantial majority of the net proceeds from the transaction to repay existing indebtedness which will improve the company’s leverage levels.

Rite Aid also expects that the gain it will record on the sale of the assets will be largely offset by its net operating loss carryforwards, resulting in a minimal cash tax payment on this transaction.

Immediately following the completion of the transaction, Rite Aid will continue to operate approximately 2,600 stores and six distribution centers as well as EnvisionRx, its pharmacy benefit manager, RediClinic and Health Dialog.

The company will leverage the capabilities of these subsidiaries to deliver a higher level of care in the communities it serves.

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