Those looking forward to the anticipated Walgreens–Rite Aid merger may need to hold the phone; the Federal Trade Commission (FTC) is reportedly unsatisfied with the companies’ efforts toward gaining antitrust approval, even after divesting 865 drugstores to Fred’s Pharmacy.
The officials are concerned that Rite Aid’s potential $17.2 billion sale doesn’t go far enough to preserve competition that would be lost in the tie-up, according to Bloomberg. Walgreens had already acknowledged in September 2016 that it would likely need to divest itself of 500 to 1,000 stores in order to ease regulators’ concerns, so the pharmacy has been scrambling to find a solution that would appease them.
The combined company would have approximately 13,000 total locations when accounting for the divested stores, giving Walgreens-Rite Aid the largest pharmacy footprint in the U.S., vaulting past chief competitor CVS Health’s 9,600 locations.
If the deal doesn’t win antitrust clearance by the Jan. 27 closing deadline, Walgreens would have to pay Rite Aid a termination fee of $325 million, which could double to $650 million “in certain circumstances,” according to a company filing.
As the FTC mulls over its impending decision, pharmacies across the U.S. will certainly be paying close attention. With CVS and Target partnering up at the end of 2015, Walmart and Kroger are the remaining two household names that have a lot riding on another merger, with Fred’s status entirely dependent on the outcome.
In addition to a dominant store footprint, the combined Walgreens and Rite Aid brands would have significantly more power in drug price negotiations compared to other brands. Smaller chains or individual pharmacies would have more trouble competing in a two-horse race — especially if the bigger brands are able to negotiate more favorable drug prices for themselves.