Divested Stores In Walgreens/Rite Aid Deal Will Go To Strategic Buyers, Not PE

Deutsche Bank believes that there is no threat to the completion of Walgreens Boots Alliance Inc (NASDAQ: WBA)'s acquisition of Rite Aid Corporation (NYSE: RAD).

Minimal Headwinds To The Acquisition

The firm pointed out checks have suggested private equity is not keen on buying divested stores, and only strategic buyers would be interested.

Analysts George Hill and Stephen Hagan think private equity could come in only as a last resort, citing the challenges of operating a small pharmacy business, which would result in lower negotiated prices. They pointed out the kind of investment required in managing the retail firms.

Analysts' Confidence

Therefore, the brokerage is confident that Walgreens would like to sell its stores based on the negotiating power and the competitive space. The firm also thinks the regulator would mostly prefer stores to be sold to strong rivals to keep the existing level of competition before the Rite-Aid acquisition.

Deutsche Bank revealed in a research note, “We note that the sales process could take longer than expected and longer than recently indicated by WBA management (deal period extended through January 2017), but we do not believe there is a real reason for this deal to not get done. We would not be surprised to see the process extend into mid 2017.”

Therefore, the brokerage maintains its Buy rating on Walgreens shares with a target price of $88.

At last check, Walgreens traded up 1.84 percent to $81.54. Rite Aid was flat on the day at $6.87.

Image Credit: By EricMiller214 - Own work, CC BY-SA 3.0, Wikimedia Commons

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