Bloomberg News

Rite Aid Gains After Susquehanna Says It May Be Walgreen Target

November 29, 2011

Nov. 28 (Bloomberg) -- Rite Aid Corp. climbed as much as 9.1 percent after Susquehanna Financial Group said it may be a takeover target of Walgreen Co., the largest U.S. drugstore chain.

Acquiring Rite Aid, the third-largest U.S. drugstore chain, for $1.60 a share in stock would boost Walgreen’s profit by about 5.8 percent in the first year after the transaction, Joseph Stauff, an analyst with Susquehanna in New York, wrote today in a note to clients.

Growing “hostility” over reimbursement rates between drugstore chains and companies that manage drug benefits for corporations and other employers may lead to consolidation among retailers, Stauff said. Walgreen, which controls almost 28 percent of prescription sales, would capture another 7.1 percent with Rite Aid, he estimated.

CVS Caremark Corp.’s market share is 23.5 percent, according to Susquehanna.

Rite Aid advanced 7.3 percent to $1.18 at 11:30 a.m. in New York, after earlier reaching $1.20. Walgreen rose 1.2 percent to $32.83.

Walgreen, based in Deerfield, Illinois, doesn’t comment on speculation, spokesman Jim Cohn said in an e-mail. Susan Henderson, a spokesman for Camp Hill, Pennsylvania-based Rite Aid, didn’t immediately reply to a telephone message.

Walgreen’s contract to provide prescriptions for customers of Express Scripts Inc., a pharmacy benefit manager, expires at the end of the year. The two companies haven’t resolved differences over how much Walgreen would charge for prescriptions and how much Express Scripts would reimburse the retailer, executives told analysts at Lazard Capital Markets conference Nov. 16.

--Editors: James Callan, Robin Ajello

To contact the reporter on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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