TD The FTC, which had argued the combined drugstore companies
would have the clout to raise prices too much in some markets, called
the collapse of the deal "a victory for consumers." George
Cary, deputy director of the FTC's Bureau of Competition, rejected Rite Aid's
charge that the agency acted arbitrarily, pointing out that the agency
has cleared five drugstore acquisitions in the past two years, including
two by Rite Aid and one by Revco.
The collapse of the deal is a stunning setback for
Rite Aid and, some believe, for the chain-drugstore business as a whole.
Some rivals feared the acquisition would have created a drugstore colossus
-- with close to $11 billion in annual sales and more than 4,500 stores
-- twice the number of nearest rival Walgreen Co. But industry executives
and analysts said the FTC's actions could threaten growth
prospects for big chains by putting a damper on acquisitions, which drugstores
see as a way to slash costs.
Some executives in the $87 billion industry also say
bigger chains are crucial in fending off pressure from managed-care
groups, which are squeezing profits for the drugstores by cutting the fees
they pay pharmacies to dispense drugs to consumers. . . .
Mr. Cary also said that a combination of Rite Aid and Revco, which have the two largest store counts of any drugstore chain, would be a unique circumstance. . . .
The head of a drugstore trade group agreed. "We do not believe the FTC is sending any signal indicating absolute opposition to consolidation in this industry," said Ronald L. Ziegler, head of the National Association of Chain Drug Stores. . . .
In composite trading on the New York Stock Exchange, Rite Aid shares fell $1.75 to $29.875. Revco shares fell $1.875 to $24.125.
Rite Aid said it didn't have to pay a breakup fee, but that it would take a fiscal first-quarter charge of $15 million to $16 million, or 10 cents to 12 cents a share, for costs related to the aborted deal. Mr. Grass ruled out a future Revco bid. . . .
Chronology of tensions between the drugstore companies and the FTC
Dec. 28: FTC requests more information related to proposed deal. Deadline for tender offer is extended, in what will be the first of a constant stream of extensions.
Feb. 8: FTC says Rite Aid and Revco both violated consent decrees requiring them to sell certain stores, and appoints trustees of its own to sell the branches in question. While the consent decrees stem from prior acquisitions, the squabble hints at strained relations between the agency and the firms.
Feb. 20: Merck & Co. files an antitrust lawsuit against Rite Aid and other retail pharmacies, alleging they joined in a conspiracy to boycott a contract for Merck's Medco unit to administer the prescription-drug benefit program for employees in the state of Maryland. Merck lost the contract last winter after more than half the state's pharmacies refused to fill prescriptions. Rite Aid denies the accusation.
April 17: FTC panel votes to block Rite Aid-Revco deal, citing concerns about higher prices.
April 22: Rite Aid offers to shed about 340 stores -- about 8% of combined entity's stores -- in hopes of heading off FTC's threat to sue to block the deal.
April 23: FTC rejects the settlement proposal and restates intention to block the deal.
April 24: Rite Aid drops its tender offer for Revco.
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