In a move that may speed up the long-planned $17.2 billion acquisition of Rite Aid by Walgreens Boots Alliance, Fred’s Pharmacy has agreed to buy 865 Rite Aid stores in the eastern and western U.S. for $950 million in cash. The transaction is expected to close several months after the Rite Aid acquisition is completed, and is subject to Federal Trade Commission and other regulatory approvals.
Walgreens had acknowledged in September 2016 that it would likely need to divest itself of 500 to 1,000 stores in order to ease regulators’ concerns. With the acquisition of the Rite Aid stores, Fred’s will become the third-largest drugstore chain in the U.S., creating a new national competitor to rival not just Walgreens and Rite Aid but CVS Health as well.
“This will be a transformative event for Fred’s Pharmacy that will accelerate our healthcare growth strategy through our acquisition of 865 new stores in highly attractive markets,” said Michael K. Bloom, Fred’s Pharmacy’s CEO in a statement. “We have been working for several months on integration plans to ensure a seamless transition for Rite Aid customers, patients, team members and supplier partners.”
The Memphis-based Fred’s currently operates 647 discount general merchandise stores and three pharmacy-only locations in 15 southeastern U.S. states. Additionally, there are 370 full-service pharmacy departments located within Fred’s stores.
Fred’s has struggled to compete with Walmart and dollar stores in 2016. In Q3, Fred’s sustained a net loss of $38.4 million, compared to $1.4 million in net income for the same period last year. The retailer’s Q3 net sales of $516.6 million were 4.5% lower than the $541 million achieved in Q3 2015. Comparable store sales declined 3.8%, versus a 2.7% increase during the same period in 2015.
Following the acquisition of the Rite Aid stores, Fred’s Pharmacy will continue to employ store and certain field and regional team members related to store operations, and will retain the Rite Aid banner through a 24-month transition.