Walgreens Said to Near Deal for Rite Aid

By MICHAEL J. de la MERCED and HIROKO TABUCHIOCT. 27, 2015

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Rite Aid had a market value of about $6.4 billion before news reports of merger
talks with Walgreens.CreditPaul Sancya/Associated Press
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Walgreens Boots Alliance is near a deal to buy Rite Aid, potentially uniting two of
the countrys biggest drugstore chains, people briefed on the matter said on
Tuesday.
A transaction could be announced as soon as Wednesday, said one of these people,
who spoke on condition of anonymity, cautioning that final details were still being
worked on.

Rite Aid had a market value of about $6.4 billion as of Mondays market close,
meaning a takeover could be worth more than $8 billion after a likely premium
from Walgreens. Rite Aid also has $7.4 billion of debt, according to Standard &
Poors Capital IQ.
A combination of Walgreens and Rite Aid would create a new pharmacy giant with
heightened influence with drug makers, pharmacy benefity managers and others in
the health care industry.
Sweeping changes to health care under the Affordable Care Act and the rise in
insured Americans has increased prescription demand, helping increase the total
revenue of the nations retail, mail and specialty pharmacies 7 percent last year
from 2013.
At the same time, companies have also been pressured to keep costs down.
A potential deal comes after several waves of consolidation that have reshaped the
pharmacy industry. Since 2010, Walgreens has acquired Duane Reade, USA Drugs
and Kerr Drug, helping it grow to more than 8,200 stores and revenue of $76 billion
last year.
Last year, Walgreens struck a complicated deal to buy Alliance Boots, a British
pharmacy chain, to gain a foothold in Europe. Buying Rite Aid would give it an
additional 4,600 stores in 31 states, adding to its roughly 8,200 locations across the
country, Puerto Rico and the Virgin Islands.
The biggest drugstore chain, CVS Health, has also grown, acquiring Longs Drug,
Medicine Chest and Navarro Discount Pharmacy, and now runs more than 7,800
stores.
With years of steep losses, Rite Aid, which itself acquired the Brooks and Eckerd
pharmacy chains in 2007, has fallen to a distant third.
The pharmacy consolidation endgame has begun, said Adam J. Fein, president of
Pembroke Consulting, a firm based in Philadelphia that specializes in the
pharmaceutical industry. Rite Aid was one of the last remaining pharmacy assets
available for purchase, he said.
Even with its debt, Rite Aid could have survived into the future. But this
combination will give the new business a lot more scale, he said. The combined
entity will have a lot more power against pharmacy benefit managers and other
payers. They will be able to negotiate higher reimbursements for prescriptions.
Shares of Rite Aid jumped 39 percent after The Wall Street Journal reported the
talks.

The struggling market for initial public offerings just claimed another victim.
Deezer, the French music streaming service, withdrew its I.P.O. on Tuesday, blaming
tough market conditions.
It is a setback for Deezer, a Paris-based rival to Spotify and Apple, which wanted to
use the $330 million it had expected to raise from the offering to fend off
competitors in the music-streaming industry. The planned offering was expected to
have valued the company at roughly $1.1 billion.
The postponed public listing on the Paris bourse Deezer said it was reviewing its
funding options is also the latest failed attempt by a company to tap the global
public markets where confidence has been sapped by a number of global shocks,
including a downturn in China and weak growth in Europe. The luxury retailer
Neiman Marcus and Albertsons, the supermarket chain, for example, have recently
delayedtheir public offerings.
For Deezer, which has about six million paying subscribers in 180 countries,
compared with Spotifys 20 million paying users, investor appetite also was hit by a
number of recent weak earning reports by other media-streaming services,
including Netflix and Pandora, according to a person with knowledge of the matter,
who spoke on the condition because he was not authorized to speak publicly.
These earnings had raised questions for investors over whether the French musicstreaming company would be able to weather the current instability in the worlds
financial markets, he added.
This month, Netflix said that its third-quarter profit fell 50 percent from the period a
year ago, as the company reported worse-than-expected streaming growth in the
United States.
Pandora, the Internet radio service, also suffered a 35 percent one-day drop in its
share price on Oct. 23 after it downgraded its financial guidance for the rest of the
year, in part because of strong competition from the likes of Apple.
While Deezer was forced to postpone its public offering, the company must still
compete with deep-pocketed rivals like Spotify just as interest in music-streaming
services is picking up. Spotify, based in Stockholm, has raised over a billion dollars
from private investors to value the company at more than $8 billion.
Deezer generates roughly half its revenue from its domestic French market, while
the rest of Western Europe represents the companys second-largest region by
number of paying subscribers, Hans-Holger Albrecht, the companys chief
executive, recently told DealBook.

Developing countries in places like Latin America also constitute a large percentage
of Deezers business, he added. In contrast, the United States remains Spotifys
largest market, where it also competes against companies like Pandora.
In many countries, particularly those in emerging markets, Deezer has expanded
rapidly through partnerships with local telecommunications operators that have
bundled Deezers music service with monthly cellphone packages.
While such partnerships have increased the number of overall users, analysts say
such deals do not generate the same level of revenue compared with selling
subscriptions directly to potential customers.