Store Divestiture Looking To Peak at 500 but Store Closures Still
Being Weighed
July 7, 2016
Walgreens
Boots Alliance’s proposed acquisition of Rite Aid is progressing as planned,
according to Walgreens. The $17.2 billion buyout is in the process of clearing
federal regulatory approval while the drug retailers’ integration team
continues working on preliminary planning.
This past month, Walgreens completed a $6 billion public bond offering to support the funding of the acquisition, which the company still expects to receive federal approval and close by the end of the year.
In discussing its third quarter results yesterday, Stefano Pessina, executive vice chairman and CEO of Walgreens Boots Alliance Inc., reiterated that the company expects it will have to divest 500 stores if the merger receives federal approval. Walgreens and Rite Aid’s merger agreement provides for the divestment of up to 1,000 stores if required by regulators.
What is still not clear is how many stores the combined chains would close to meet a target of $1 billion in cost synergies.
Walgreens and Rite Aid, the second and third-largest drug store chains respectively, control roughly 200 million square feet of retail space and another 21 million of office and distribution space. Costs savings are expected to come largely from closing redundant stores and gaining distribution channel efficiencies.
Walgreens has not given an indication of how many that might be.
If Walgreens and Rite Aid are allowed to merge, the stores most likely to be closed are those with sales that chronically underperform, or those that cannibalize sales from each other, according to real estate research analysts.
An analysis of research data compiled by CoStar found that the two drugstore chains have more than one location in nearly 3,100 ZIP codes across the country. Together they have more than four store locations in 410 ZIP codes.
This past month, Walgreens completed a $6 billion public bond offering to support the funding of the acquisition, which the company still expects to receive federal approval and close by the end of the year.
In discussing its third quarter results yesterday, Stefano Pessina, executive vice chairman and CEO of Walgreens Boots Alliance Inc., reiterated that the company expects it will have to divest 500 stores if the merger receives federal approval. Walgreens and Rite Aid’s merger agreement provides for the divestment of up to 1,000 stores if required by regulators.
What is still not clear is how many stores the combined chains would close to meet a target of $1 billion in cost synergies.
Walgreens and Rite Aid, the second and third-largest drug store chains respectively, control roughly 200 million square feet of retail space and another 21 million of office and distribution space. Costs savings are expected to come largely from closing redundant stores and gaining distribution channel efficiencies.
Walgreens has not given an indication of how many that might be.
If Walgreens and Rite Aid are allowed to merge, the stores most likely to be closed are those with sales that chronically underperform, or those that cannibalize sales from each other, according to real estate research analysts.
An analysis of research data compiled by CoStar found that the two drugstore chains have more than one location in nearly 3,100 ZIP codes across the country. Together they have more than four store locations in 410 ZIP codes.
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