WBA secures regulatory clearance for new Rite Aid deal
DEERFIELD, Ill. — Walgreens Boots Alliance announced Tuesday that it has secured regulatory clearance for an amended and restated asset purchase agreement to purchase 1,932 stores, three distribution centers and related inventory from Rite Aid for $4.38 billion in cash and other consideration.
“This is a significant moment for our company,” stated Stefano Pessina, executive vice chairman and CEO Walgreens Boots Alliance. “Combining Walgreens retail pharmacy network with a strong portfolio of Rite Aid locations is expected to help us achieve enhanced, sustainable growth while enabling us to broaden our reach and provide greater access to convenient, affordable care in more local neighborhoods across the United States."
"With a compelling and more profitable store footprint in key markets, enhanced purchasing capabilities and a stronger balance sheet and improved financial flexibility, we are well positioned to implement our plans to deliver improved results," added John Standley, chairman and CEO Rite Aid. "We are committed to supporting a smooth transition as we remain focused on delivering a great customer experience, improving our business and creating value for all of our stakeholders."
After all stores are acquired, stores are planned to be converted to the Walgreens brand in phases over time. The stores to be purchased are located primarily in the Northeast and Southern U.S., and the three distribution centers to be purchased are located in Dayville, Conn., Philadelphia, Pa., and Spartanburg, S.C. The transition of these distribution centers to Walgreens will not begin for at least 12 months.
Rite Aid will provide certain transition services to Walgreens Boots Alliance for up to three years after the closing of the transaction.
The consideration for the transaction will now be $4.375 billion in cash, the assumption by Walgreens Boots Alliance of the related real estate leases and the grant of the option to Rite Aid, exercisable through May 2019, to become a member of Walgreens Boots Alliance’s group purchasing organization, Walgreens Boots Alliance Development. Walgreens Boots Alliance will also assume certain limited store-related liabilities as part of the new transaction.
The transaction has been approved by the boards of directors of Rite Aid and Walgreens Boots Alliance and is still subject to other customary closing conditions. Store purchases are expected to begin in October, with completion anticipated in spring 2018.
Rite Aid expects to use a substantial majority of the net proceeds from the transaction to repay existing indebtedness which will improve the company's leverage levels. Rite Aid also expects that the gain it will record on the sale of the assets will be largely offset by its net operating loss carryforwards, resulting in a minimal cash tax payment on this transaction.
Immediately following the completion of the transaction, Rite Aid will continue to operate approximately 2,600 stores and six distribution centers as well as EnvisionRx, its pharmacy benefit manager, RediClinic and Health Dialog. The company will leverage the capabilities of these subsidiaries to deliver a higher level of care in the communities it serves.
The amended and restated asset purchase agreement replaces the earlier purchase agreement entered into by the parties in June 2017, which included 2,186 stores and related assets for $5.175 billion in cash and other consideration.
Health innovation: What’s next?
The future of retail innovation is not just about selling products; it’s about developing new healthcare platforms, uncovering new networks and nurturing a passionate brand community. Retailers and consumer health companies must constantly knit together new assets, addressing the changing needs of today’s consumer. It is created by balancing science, emerging technology and design. Committing to an innovative culture is dangerous because you never know what you will discover, or what the implications will be. The discovery process is core to an emerging healthcare culture.
According to Kantar research, healthcare services and goods are projected to account for 24% of consumer spending by 2021. Moreover, 1-in-20 Google searches are health-related. Optimizing health innovation is vital to securing the heart and soul of the consumer. Retailers and brand marketers must think more like tech companies: They must be agile, nimble and in a constant state of ideation. All companies must embrace risk and failure to uncover future innovations and get to what’s next.
Against this backdrop, Drug Store News and Mack Elevation, in partnership with CVS Health, co-hosted the Health Innovation Summit in Providence, R.I., in June. Following are five big ideas for driving innovation in health care.
Shifting from “sick care” to “self care”
The future of health innovation will focus on personal wholeness and wellbeing. The solution lies outside of the bottle and emphasizes total systemic health. According to futurist and healthcare economist Jane Sarasohn-Kahn, America is suffering from a health epidemic — 33% of the country is battling obesity, 25% are arthritic, 20% suffer from mental illness and 10% are diabetic. Healthcare premiums are increasing three times faster than wages, and deductibles have doubled in just a few years.
Helping to set the tone for the day’s discussions, CVS Pharmacy VP of merchandising George Coleman talked about the evolution of consumer health and the shifting focus from “sick care to self care,” driven by increased consumer self-knowledge and expanded insights into prevention, natural products and self-management. The future of retail health services could look more like a healthcare barista, offering one-on-one personal services with an emphasis on healthy foods and nutrition.
A mindset of experimentation
Steve Laughlin, VP and general manager at IBM, talked about the experimentation imperative. The future of the retail store will be built on deeper direct-to-consumer outreach, hyper-personalization and new services that encourage consumer connection. The industry can learn from Sephora and Ulta; they have built stores that encourage consumer community and emotional loyalty — even though 30% of Sephora and Ulta’s business is done online, the stores are perceived as playgrounds for their shoppers.
Think 10X, not incrementalism
Ryan Olohan, industry director at Google, examined the philosophies and practices of healthcare companies that are growing 10 times faster than their competitors. Rather than focusing on incrementalism, these winning firms think step-change and look for breakthrough transformations. Google Ventures allocates 40% of its funding to investments in emerging healthcare innovation.
According to Olohan, 86% of consumers use Google or YouTube to search for relevant health information. More than 25% of those searches result in an in-store purchase, and 3-of-4 people who conduct a mobile search visit a store within 24 hours. The world is looking for compelling healthcare content and bigger ideas — not brand sales pitches.
Innovation to adoption
Chris MacAuley, VP of connected fitness at Under Armour, talked about the company’s disruptive, transformational vision to help athletes in their relentless pursuit of innovation and its forward-thinking process for driving sustainable consumer adoption of new innovation. With 210 million registered users of its apps, Under Armour has one of the largest health-and-fitness communities in the world, and the company has created a connected.
Digital, mobile, video impact
Facebook senior client partner Aaron Calloway reminded attendees that the top five companies in the world are currently digital platforms.
Mobile is not a new shift; it is core to how everyone now thinks. Mobile is the new storefront. Product discovery begins on mobile; according to Kantar, 30% of mobile shoppers prefer to discover new products through video. Roughly 55% of time spent shopping online now is occurring on shopping apps — up 10% from last year.