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The suspense (or impatience?) continues to build in the investor and retailing communities as Walgreens Boots Alliance’s $17.2 billion deal to buy Rite Aid remains under review by the Federal Trade Commission.
Lately, speculation has centered on Kroger as a potential buyer of stores that would be divested by WBA for the FTC to sign off on the deal.
The Cincinnati Business Courier reported that Kroger may be a “prime bidder” for Rite Aid and/or Walgreens stores, noting that Kroger is the fifth-largest retail pharmacy operator and could use those locations to boost its pharmacy business. The report also said Kroger, which in the past had been rumored as a Rite Aid suitor, could opt to use the real estate for future supermarkets, notably in urban sites.
Urban locations could be the biggest draw to Kroger as a possible buyer of Rite Aid/Walgreens stores, according to the Tampa Bay Business Journal, which cited a trend toward smaller store formats.
Talking to “Supermarket Guru” Phil Lempert, the Journal report said Kroger has been seeking prime real estate in dense urban markets and could open smaller grocery stores or “mini Kroger stores” focusing on groceries and health and beauty aids — counteracting not just other supermarket operators but also drug chains, which have boosted their food and grocery offerings in recent years. The Journal also noted that smaller-footprint grocery players like Trader Joe’s, Aldi and Lidl have been expanding rapidly.
(Note: All of these reports named Bloomberg as the source for Kroger being a potential bidder for Rite Aid/Walgreens stores. The Bloomberg report, citing antitrust news provider The Capital Forum, said Kroger is a “leading candidate” to buy some Rite Aid/Walgreens stores and talks with the FTC are still in the early stages. The Capital Forum report cited “a person familiar with the FTC review,” according to Bloomberg.)
This week, investment pundit Jim Cramer of CNBC’s “Mad Money” and TheStreet.com also mentioned Kroger as a possible buyer of divested stores from the Walgreens-Rite Aid deal. Yet the report by TheStreet said Kroger’s involvement could sway the FTC to green-light the deal. Cramer observed that after Haggen’s ill-fated purchase of stores divested as part of the Albertsons-Safeway merger, regulators want to be more certain that acquirers of divested stores are able to digest them.
“Now that Kroger has emerged as a buyer for all of Rite Aid’s overlapping stores, the Walgreens deal seems like a slam dunk, Cramer said,” according to TheStreet’s report, which recapped Cramer’s Sept. 6 “Mad Money” segment. “Kroger is not only well-capitalized, it has considerable experience in running pharmacies in its stores. Kroger would make for a strong competitor to Walgreens, which is exactly what the Federal Trade Commission is seeking.”
WBA has said that it would divest up to 1,000 stores if required by the FTC but that the company expects that figure to be more around 500 stores. By and large, industry analysts expect divestitures to be in that range. WBA executives have said they expect the merger transaction to close in the second half of this year.
