Walgreens Boots Alliance will buy Rite Aid for $9.41 billion in cash.
Shares of Rite Aid jumped nearly 40% Tuesday afternoon on a report that it could be picked up by Walgreens, the biggest U.S. drugstore chain.
The Wall Street Journal reported Tuesday that Walgreens was in advanced talks to buy Rite Aid, which is based in Camp Hill, Pennsylvania. The deal will combine the largest and third-largest U.S. drugstore chains, based on store counts.
The tie-up would make one of the world's largest pharmaceutical buyers even bigger at a time when other key healthcare players like insurers and drugmakers also are expanding through multi-billion dollar deals.
A partnership with Rite Aid could give Walgreens additional purchasing power in negotiating prices with drug companies, a hot topic given the rapid rise in cost for some prescriptions. It also may provide a little more leverage for hashing out reimbursement terms with payers like health insurers, noted analyst Vishnu Lekraj, who covers the sector for Morningstar.
Adding Rite Aid's 4,600 stores could help Walgreens lower price for its customers because its growing volume of prescriptions would put it in a better position in talks with drug providers.
The Deerfield, Illinois, company just last year closed its acquisition of European health and beauty retailer Alliance Boots, which runs the biggest drugstore chain in the United Kingdom. That purchase created Walgreens Boots Alliance, which runs more than 13,200 stores and 350 distribution centers in 11 countries.
Alliance Boots leader Stefano Pessina, a driving force behind that deal, took over as CEO of the combined company in July. He told analysts then that Walgreens Boots Alliance was hungry for more deals, either internationally or in the United States.
Rite Aid runs drugstores in 31 states and the District of Columbia. The company has spent years turning around its business by cutting costs, closing underperforming stores and revamping others.
Even so, Lekraj said it has largely underperformed over the past five years, "which gives you an opportunity to get it at a good price."
Rite Aid Corp. shares were up $2.31 to $8.39 in afternoon trading, while Walgreens rose more than 5%, or $4.93, to $94.41.