Sruthi Ramakrishnan and Diane Bartz
Two influential U.S. senators called for close scrutiny of Walgreens Boots Alliance Inc's plan to buy Rite Aid Corp. for $9.4 billion, a deal that would unite two of the three biggest U.S. drugstore chains.
Walgreens Chief Executive Stefano Pessina said the company had analyzed the antitrust aspect of the deal but would not speculate on the number of drugstores it might need to divest in order to win regulatory approval.
Walgreens ranks first and Rite Aid third by number of stores, either side of CVS Health Corp.
The top two antitrust lawmakers in the U.S. Senate on Wednesday urged antitrust enforcers to give the plan careful scrutiny because of the importance of healthcare in the U.S. economy.
"I have fought tirelessly to promote competition in the health sector and I believe the proposed merger of two of the three largest drug store chains in the country raises serious issues," Senator Amy Klobuchar, the top Democrat on the Senate Judiciary Committee's antitrust subcommittee, said in a statement.
The subcommittee's chair, Republican Senator Mike Lee, said he hoped antitrust agencies would "closely scrutinize" the deal.
Several analysts and antitrust lawyers said the deal would probably pass regulatory muster provided some stores were divested, especially in the northeastern United States, where Walgreens and Rite Aid stores overlap by more than 25 percent.
Walgreens shares closed down 10.7 percent on Wednesday. They had risen 7 percent on Tuesday after reports emerged that a deal was imminent.
Rite Aid shares, which rose 40 percent on Tuesday, fell 7.0 percent to $8.06.
"We have done significant analysis on how we can bring the two companies together, including the antitrust analysis," Pessina said on a conference call with analysts on Wednesday.
He said the deal made sense as the company was facing "tough challenges" in all its markets, either from competitors or from the government's "relentless" drive to manage healthcare costs.
Walgreens offered to buy Rite Aid to gain scale in the retail pharmacy industry and not to increase its negotiating power with insurers and pharmacy benefit managers, he added.
President Barack Obama's national healthcare reform law, which seeks to limit spending by cutting payments in government insurance programs, has been a contributory factor to a recent spurt in consolidation across the healthcare industry.
Healthcare deal-making hit a record of $392.4 billion in 2014 and has already surpassed that this year, reaching $447.5 billion as of Sept. 10, according to Thomson Reuters data.
Walgreens, which also reported better-than-expected quarterly profit and sales on Wednesday, said it expects to save more than $1 billion from the Rite Aid deal.
But the company said it would suspend share repurchases under its $3 billion program to fund the deal.