Walgreens eyes new Rite Aid deal with excess cash on balance sheet

By Devika Patel

Knoxville, Tenn., June 29 – Walgreens Boots Alliance, Inc. announced a new agreement with Rite Aid Corp. on Thursday, under which Walgreens will buy 2,186 stores, three distribution centers and related inventory from Rite Aid for $5.18 billion in cash.

The new agreement replaces the previous merger agreement with Rite Aid, announced in October 2015 and amended in January, and the agreement to divest certain Rite Aid stores to Fred’s, Inc. announced in December 2016. Both of these agreements have been terminated.

Since the old agreement was first announced, the company has generated a lot of cash, which it plans to return to shareholders through a $5 billion share buyback program, also announced Thursday, which will expire on Aug. 31, 2018.

“We’ve obviously, because of the time it’s taken since the original announcement of the original Rite Aid transaction, we’ve obviously been building up a lot of cash, which is not something that we like,” executive vice president and global chief financial officer George Fairweather said on the company’s third quarter earnings conference call on Thursday.

“We’re very committed to having an efficient balance sheet.

“That’s why, today when we’ve announced the new transaction, we’ve [also] announced the $5 billion share buyback program,” he said.

Fairweather said that the company is very focused on creating value through mergers and acquisitions, and if a deal doesn’t produce the “right returns,” management will pass on the acquisition. He stressed that Walgreens’ leadership considers an efficient balance sheet to be “very important.”

“We’re very committed to being financially disciplined.

“When we’re looking at M&A, we’re very focused on the numbers.

“If the numbers don’t add up, don’t meet our investment hurdles, then we’re very disciplined [and] we don’t do transactions.

“So we’re very happy to grow organically and invest and do M&A when we get the right returns.

“But equally [we have] a very clear policy of returning any surplus funds to shareholders.

“Having an efficient balance sheet [is] very important to us,” he said.

The initial closing of the new acquisition is expected to occur within the next six months.

Free cash flow for the quarter was $1.6 billion. Free cash flow for the year to date is $4.3 billion.

Walgreens is a Deerfield, Ill.-based drugstore chain.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.