The rumor accelerated after recent comments by Stefano Pessina, WBA’s acting CEO and current global channels overlord. (See the Reuters article below.) Below, I highlight other recent articles that are feeding the rumor, along with perspective from two reputable investment banks.
I'm skeptical that such a deal will happen, especially because there are other logical acquisition targets (AmerisourceBergen, Diplomat Pharmacy, ULTA Beauty). But given Pessina’s track record and ambitions, we can’t ignore the possibility.
Read on and see if you agree. In case you are wondering: this is not an April Fool's post.
Here’s the Reuters article that got tongues wagging: Walgreens Boots CEO expects to do more deals in U.S.. In the article, Pessina hinted at his next acquisition, saying: “The next big one will probably be in the U.S. because it is such a big market. It is a fascinating market.” Indeed.
Given Pessina’s track record with acquisitive growth, he’ll certainly attempt another mega-deal. So, what will WBA buy?
BTW, you can learn more about Pessina from the hagiographic website at www.stefanopessina.com.
Ever since Pessina’s comments, the day traders over at the Seeking Alpha website can’t stop talking about a Rite Aid deal. Here are two representative articles:
Here’s Why We Think Walgreens Might Consider Acquiring Rite Aid.
Some reputable investment banks have also commented on a potential WBA-RAD deal.
Here's what David Larsen at Leerink wrote recently:
”We estimate there is a better than 50% chance that WBA will seek to acquire RAD…RAD is one of the few remaining assets in the U.S. that is large enough to move the needle for WBA. We believe that Stefano Pessina is seeking to grow earnings rapidly in order to enhance shareholder value and retain the CEO role of the new WBA enterprise.”George Hill at Deutsche Bank was more negative, writing:
”A potential acquisition of Rite Aid seems unlikely to us for a number of reasons. The biggest reason is the store overlap, which presents concerns from both an FTC standpoint and from a synergies target standpoint. The second reason is that Walgreens currently has a target to keep its investment grade rating and an acquisition of Rite Aid would likely result in a leverage ratio above the typical range for an investment grade company. Most of the higher interest rate debt carried by RAD is not redeemable, removing another potential synergy.”Next week, WBA will discuss its strategy during a two-day investor meeting. I’m very curious to see what news gets announced—and how much of the previous Walgreens management team’s strategy will remain.