The company that owns drugstore chain Walgreens said Tuesday that it has agreed to acquire smaller rival Rite Aid, a potential corporate tie-up that reflects sweeping changes in the retail pharmacy business, where profitability is being pressured by lower reimbursement rates on prescription drugs.
Walgreens Boots Alliance, the corporate parent of Walgreens, valued the deal at $17.2 billion when debt is included. In a statement, the company said it initially plans for Rite Aid to continue operating under its existing name, leaving the door open for folding the Rite Aid brand into the larger Walgreens down the road.
Walgreens says the combined companies could achieve $1 billion in cost savings. And if they are to join forces, their bigger size would likely give them more power in negotiating drug prices. Walgreens said in a statement that it expects the transaction to close in the second half of 2016.
Such a merger comes amid a broader shake-up in the corporate landscape of the health-care industry, which this year saw consolidation among major insurance providers when Anthem purchased Cigna and Aetna acquired Humana.
Walgreens, based in Deerfield, Illinois, has more than 8,000 stores in the United States and pulled down about $73 billion in sales in 2014. Rite Aid has just over half as many locations and saw $27 billion in sales last year.
“This combination will further strengthen our commitment to making quality health-care accessible to more customers and patients,” Walgreens Boots Alliance chief executive Stefano Pessina said in a statement. “Our complementary retail pharmacy footprints in the U.S. will create an even better network, with more health and wellness solutions available in stores and online.”
Because both retailers are such large players in the pharmacy category, their deal could potentially draw scrutiny from antitrust regulators.
The retailers are no strangers to mergers: Rite Aid, based in Camp Hill, Pennsylvania, purchased EnvisionRx, a pharmacy-benefits manager, in June for about $2 billion. And back in 2006, Rite Aid scooped up two of its smaller drugstore rivals, Eckerd and Brooks.
And in December 2014, the company then known as Walgreen completed a merger with Alliance Boots, a privately held pharmacy and beauty company that has a big presence in Europe. The new company, named Walgreens Boots Alliance, has been working to trim costs, including with an plan announced this year to close 200 stores in the United States. Walgreens also owns Duane Reade stores in the United States.
Rite Aid and Walgreens, along with their biggest competitor, CVS, have been looking for ways to expand the role they play in delivering health-care services, including with in-store clinics.
Rite Aid’s stock jumped a stunning 43 percent Tuesday after a report in the Wall Street Journal said a deal might be imminent. Walgreens Boots is scheduled to release its latest quarterly earnings on Wednesday before the stock market opens.