Merger – Walgreens & Rite-aid
Merger – Walgreens and Rite-aid A merger is the coming together of two companies to form one. This mostly occurs when two competing companies join forces and bring together their resources to form one company. The formation of a new company means there is also the formation of a new name for it. Most mergers opt to join their names to avoid losing their clients and reputation, while still trying to gain more clients from the merge. There are many different types of mergers. There is the horizontal merger, where two competitors join forces and become one. There is the vertical merger, where those who depend on each other, like a customer and company, come together. There is also conglomeration. This is the type of merger where unrelated companies come together to form one.
These forms of mergers are mostly formed to benefits these companies in different ways. There is increasing the profit by reducing the cost of running the company. This means reducing a number of the employee who share a common field from both companies. There is also the gaining or improving the form of technology available. By merging the different technologies to keep up with the competition and still offer the required products and services. Mergers are also important in creating and broadening the available market for products and goods being offered by the two companies.
In the case of Walgreen and Rite Aid, the two of USA’s second and third largest drug stores are in the process of merging, with Walgreen offering around 9.4 billion dollars to Rite Aid. This is a form of horizontal merger, which also in a way is an acquisition because it is also believed that an additional 7.8 billion dollars seem inclusive to see off Rite Aid’s debt. Rite Aid had endured losses from the years 277-2012, and the move is viewed as redemption. This is a move that will increase the number of drug stores for Walgreen from 8,200 stores across the USA to around 12,900 for the new promising to Walgreen. And this will give Rite Aid an upper hand in the venturing of other markets from a company they will form with Rite Aid. Rite Aid’s strong market presence in the Northeast and Mid-Atlantic is other countries where Walgreen has already established itself. The merger is seen to have the potential to increase a lot of pressure on CVS, the leading rivals in this competition. The effect has already started to be felt on Wall Street with the CVS Health stock rising by up to 2% to close the stock share price of $105.29 per share. Walgreen plans on letting Rite Aid keep their name before ‘fully harmonizing’ the two companies over time. The merger will also help in opening up the market for other drug stores in areas where he two drug store giants dominated before the merger. With the merge, the new company is projected to save up to around 1 billion dollars in synergies. Synergy is the cut of production and management cost by cost sharing from the two companies.
The merger has also seen to be gaining many potential new investors. The rise in stock prices for the both drug stores on the stock market is proof to that. Rite Aid registered a significant rise in their stock prices, with a marginal increase of 43% on Wall Street, to reach $8.67 per share. Walgreen stock also rose by 6% to trade at $95.16 per share. Walgreen has a market contribution of around 31% market share while Rite Aid has around 10%.
The deal, however, faces criticism and might not be easy to pass. The Federal Trade Commission does not seem to encourage a duopoly. The antitrust experts are however focused on whether the merger might fluctuate the prices of drugs across the U.S. What is yet to be understood is whether the rates of insurance premiums by Walgreen will also be increased or reduced by gaining customers from Rite Aid. One other thing Walgreen needs to find is a client or customer willing to buy the stores they will be offloading. It is estimated that Walgreen may have to sell as many as 400 locations to overcome such speculations. And those potential buyers might be the local smaller drug stores. As for the FTC, they would want the buyers to be those who can pose the same competition as Rite Aid. Goldstone, also a player in the drug store market, is seen to be the potential clients to take over the left space left by Rite Aid and will be rented at a lower price. The FTC’s main concern, however, is the market-to-market perspective, since the merger of the second and the third largest will have a great impact to the pharmacy market. The FTC is also mandated to ensure that the two companies will help ensure that those patients who cannot afford insurance, and have to buy their drugs in cash, are not manipulated. In the eventual end, the FTC have a high chance of approving the merger, given that it has in the past given a green light to the previous merger of big companies and firms. Like in the case of CVS acquiring big-box retailer Target’s pharmacy business for $1.9 billion.