Friday, 30 October 2015

Pittsburgh-area companies await effects of Walgreens-Rite Aid deal

Rite Aid, with headquarters in Camp Hill near Harrisburg, is the largest client for advertising firm Marc USA in Station Square.During Express Scripts’ third quarter earnings press briefing on Wednesday morning, CEO George Paz was asked about the impact of Walgreen Co.’s just-announced deal to acquire rival drugstore operator Rite Aid on his St. Louis-based pharmacy benefit management company.
“It’s awful early to say how all of this is going to play out and what the company is going to look like as it goes through the FTC process,” Mr. Paz replied. “But we’ll certainly keep our eyes on that, and we’ll keep up our communications with Walgreens and CVS, for that matter.”
Plenty of Pittsburgh-area companies and employees also will be keeping an eye on the proposed deal (valued by Walgreens at $17.2 billion including acquired net debt) that could send ripples through the local business community.
Rite Aid, with headquarters in Camp Hill near Harrisburg, is the largest client for advertising firm Marc USA in Station Square, for example. Nearly 30,000 Rite Aid employees are covered by Pittsburgh-based Highmark’s health insurance. There’s also the 2,300 GNC store-within-a-store arrangements that Downtown-based health and wellness retailer GNC has with Rite Aid.
Only time will tell if those relationships remain intact.
While Express Scripts headquarters is in Missouri, the company has a significant presence in the Pittsburgh area with 600 employees at its North Huntingdon facility.
The two pharmacy giants are not expecting the sale to go through until the second half of 2016, and that’s only if it passes regulatory muster. So for now, no one is sounding alarms about how the Walgreens-Rite Aid marriage might impact them.
“It’s business as usual,” said Cheryl Sills at Marc USA on Wednesday. “This pending transaction doesn’t change Rite Aid’s ongoing need to drive sales and growth, and we continue to be their partner in doing this.”
But that doesn’t mean everything stays the same.
“Like any merger, it will have some implications for other parties, some good and some bad, so we’ll have to see how that shakes out,” said Diane Denis, a professor at the University of Pittsburgh’s Katz Graduate School of Business who specializes in mergers and acquisitions.
“Any merger in this industry is absolutely a consolidation play, meaning they’re going after size and scale that will give them more bargaining power and so forth with their suppliers.”
That most likely would come into play in the chain’s drug price negotiations with pharmaceutical companies, she said. “You don’t pay these hefty premiums to have life go on as usual.”
But there’s the possibility that antitrust regulators would force Walgreens to close some stores — or Walgreens would make that decision on its own. 
An analyst with investment banking firm Jefferies seemed to agree Wednesday, noting that while the acquisition will boost Walgreen Co.’s U.S. pharmacy market share from 19 percent to 26 percent, “We believe this industry consolidation could bring store closures and/or divested store opportunity for CVS Health.”
The National Community Pharmacists Association in Alexandria, Va., which represents the interests of independent pharmacy owners, said in a statement Wednesday that a combined Walgreens-Rite Aid “would create an entity with approximately 12,000 retail pharmacies. That’s nearly 20 percent of the brick-and-mortar pharmacies in the U.S.”
The group urged regulators to “closely scrutinize this merger, particularly in regions of high concentration of their pharmacies.”
Rite Aid currently has 130 stores in the greater Pittsburgh area, and 4,600 nationwide, while Walgreens and CVS each have about 60 stores locally, according to company spokesmen. All three drugstore chains also compete with pharmacies operated by retailers like Giant Eagle and Wal-Mart.
Rite Aid’s stock had undergone increasing pressure recently, dropping from $9.32 a share in early September to just over $6 before the Walgreens announcement late Tuesday.
Rite Aid stock closed Wednesday at $8.06 and Walgreens Boot Alliance, Inc. stock was down $10.21 at $84.95.

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