Credit Suisse: WBA, Rite Aid deal doable with fewer than 1,000 store divestitures
NEW YORK — The Walgreens Boots Alliance/Rite Aid deal can pass Federal Trade Commission scrutiny with as little as 170 retail store divestitures, according to a proprietary analysis conducted by Credit Suisse, but the company will more likely be required to sell off some 950 stores. The analysis seems in-line with the cap of 1,000 stores Walgreens Boots Alliance’s set forth in its Securities and Exchange Commission filing for the acquisition, though independent analysts have suggested the final tally could reach as high as 3,000.
“FTC risk has been the key investor concern around WBA’s proposed acquisition of Rite Aid,” wrote Ed Kelly, Credit Suisse research analyst, in a note published Friday.
The Credit Suisse analysis uses the Rite Aid acquisition of Brooks/Eckerd in 2007 as a relevant baseline. In that deal,the FTC required the company to divest a total of 24 stores in markets where “the merged entity would have had between approximately 50% and 100% of the market for pharmaceutical sales to cash customers.”
Given information from more recent FTC scrutiny of the never-realized Dollar General/Family Dollar and Sysco/U.S. Foods mergers, Credit Suisse feels that threshold is likely to come down to 40% marketshare.
“Any scenario below 40% could put the transaction at risk, but this seems overly aggressive in our view given that WBA and CVS already have shares in excess of this level in many markets,” Kelly wrote.
Whatever the store divestiture requirement might be, as the only other national pureplay drug store operator in the market, CVS Health may be the acquirer of those forced divestitures, according to the Credit Suisse analysis.
“Our analysis indicates that CVS could take down the vast majority of divested stores and still remain under the market share cap set by FTC,” Kelly suggested. “We see this as a near-term positive for CVS following the close of the WBA-RAD deal and estimate that CVS’ acquisition of 500 divested stores could add ~$0.08 to 2016 EPS.”
Fred’s strong 2015 continues with October, Q3, YTD sales results
MEMPHIS, Tenn. — Fred’s has had a good year so far, according to its sales results from October, Q3 so far and the year-to-date the company released Thursday — with pharmacy and specialty pharmacy playing key roles in its sales growth
The company’s comparable store sales rose 2.3% in October, a reversal from the 1.4% drop it saw in the same period last year, and sales rose 13% in October to $164.4 million. October’s sales increases would have been higher (17%) if the company were to exclude 2014 sales from 47 stores it has since closed.
“We are pleased to report that comparable store sales growth for October tracked with our expectations,” Fred’s CEO Jerry Shore said. “These results reflected continued strong top-line growth in our retail and specialty pharmacy departments and ongoing positive trends in general merchandise sales, with a balanced mix across all categories. Halloween sales were a key driver of general merchandise performance in October.”
For Fred’s third quarter so far, sales have risen 14% over last year to $541.2 million and comps rose 2.7% for the quarter. In terms of the company’s numbers to-date, it has netted $1.596 billion in sales — a 9% increase over last year’s first nine months. And where the company saw a 0.5% comps decrease in the first three-quarters of 2014, its comps have grown 1.5% this year so far.
“Looking at the third quarter for a broader perspective, we saw clear momentum throughout all lines of business," Shore sad. “Specialty pharmacy sales of EntrustRx drove the strong total sales increase, while retail pharmacy department sales and scripts improved over the second quarter as we continue to implement the initiatives developed by our internal resources and A. T. Kearney.”
As the company heads into the holiday season and Q4, Shore said Fred’s is aiming to optimize its operations and finish the fiscal year with a strong financial showing.
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