Will Walgreens-Rite Aid Deal Fall Flat On FTC Blockade?

Walgreens Boots Alliance, Inc. (NASDAQ:WBA) , the world’s first pharmacy-led, health and wellbeing enterprise witnesses a continuous regulatory hassle with regard to impending mega acquisition of the U.S. retail pharmacy chain – Rite Aid.

The stock took a marginal hit of 0.6% on Friday’s close, following the news breakout that the Federal Trade Commission (FTC) is ‘preparing’ to block this $17 billion merger deal on unfulfillment of certain antitrust concerns.

Walgreens Boots Alliance, Inc. Price

Walgreens Boots Alliance, Inc. Price | Walgreens Boots Alliance, Inc. Quote

The Backdrop

Earlier in December, in order to clear the merger-related antitrust hurdles under the U.S. FTC requirements, Walgreens agreed to sell 865 Rite Air stores, located in the Eastern and Western U.S. along with certain other assets to discount retailer, Fred’s Inc. However, the deal got rejected by the FTC the very next month, due to antitrust issues.

Later in March, Walgreens once again extended an offer to Fred’s. Per media reports, the new proposal included sell of additional stores, distribution centers, software and personnel.

Earlier this year, Rite Aid and Walgreens jointly agreed upon a Jul 31, 2017 deadline for the deal and slashed the offer price to accommodate more store divestitures to help gain regulatory approval.

The Current Scenario

Several recent media reports suggest the fate of this path-breaking mega merger to still hang in balance. A report in Investors’ Business Daily asserted that there are growing doubts from government level about the deal between U.S.’s second and third largest drugstore chains as the combined company’s consolidated potential may harm competition.

Impact on Walgreens

If the deal falls apart, it will be a big-time blow to Walgreens investors. Walgreens had earlier noted that after its successful completion, the Rite Aid deal will lead to synergies expected in excess of $1 billion. In fact, the combination of these two retail giants could have enabled Walgreens Boots to further expand the business realm on a long-term basis in the U.S., where it already enjoys the largest retail drug store giant’s position

Share Price Performance

Walgreens Boots has been trading below the Zacks classified Retail - Pharmacies and Drug Stores industry for last three months on the looming uncertainty related to the impending Rite Aid deal. The stock has so far lost 5.4%, wider than broader industry’s 3.7% decline. This situation may further intensify with the confirmation from FTC on the above matter.

Zacks Rank & Key Picks

Walgreens currently carries a Zacks Rank #3 (Hold). A few better-ranked medical stocks are Align Technology, Inc. (NASDAQ:ALGN) , Inogen, Inc. (NASDAQ:INGN) and Accelerate Diagnostics, Inc. (NASDAQ:AXDX) . Align Technology and Inogen sport a Zacks Rank #1 (Strong Buy), while Accelerate Diagnostics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock has roughly added 37.9% over the last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has a solid one-year return of around 84.7%.

Accelerate Diagnostics has an expected long-term adjusted earnings growth of 30%. The stock added roughly 15.9% over last three months.

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