Market Overview

Partisan Politics May Be To Blame For Hold Up In Walgreens-Rite Aid Deal

Share:
Partisan Politics May Be To Blame For Hold Up In Walgreens-Rite Aid Deal

Partisan politics may be holding up the impending M&A deal between Walgreens Boots Alliance Inc (NASDAQ: WBA) and Rite Aid Corporation (NYSE: RAD), Deutsche Bank said in a note earlier this week.

Walgreens may try to force a Federal Trade Commission decision on the deal within 30 days, analysts George Hill and Stephen Hagan said. Why does this matter? The traditionally five-member FTC board has three vacant seats.

The commissioner, a Democrat, may oppose the deal, and the chairperson, a Republican, is unlikely to vote against the deal, the analysts said.

Deutsche highlighted reports that suggested Walgreens could certify it has complied with the second request and force short-staffed FTC to make a decision. Media reports indicate the regulatory agency still has issues with the deal and with Fred's, Inc. (NASDAQ: FRED) as a buyer, Deutsche Bank said.

See Also: A Positive View On Walgreens Doesn't Depend On Rite Aid Deal

Downside If Deal Fails

Deutsche Bank feels the downside to Walgreens is in the range of $73-$79 if the deal fails to close. This range, according to the firm, represents 14 to 15 times its calendar year 2017 earnings per share estimate of $5.24. Additionally, the firm said the range represents the current pharma services average to a one-turn premium, which the analysts feel is justifiable, given Walgreens' positive operating leverage and capital deployment flexibility, excluding a deal for Rite Aid.

If the deal falls through, Rite Aid shares could drop from $4.71 to $2.25, the firm said. The $2.25 stock price estimate is based on an EV/EBITDA multiple of eight times its calendar year 2017 estimates, with the multiple representing a "slight discount" from where Walgreens and CVS Health Corp (NYSE: CVS) trade. This multiple, Deutsche Bank said, is fair for a subscale player in the competitive retail pharmacy space.

Deutsche Bank has a Buy rating on Walgreens with a $92 price target.

Image: Mike Mozart, Flickr

Latest Ratings for WBA

DateFirmActionFromTo
Aug 2019MaintainsEqual-Weight
Jun 2019MaintainsOverweight
Jun 2019MaintainsUnderperform

View More Analyst Ratings for WBA
View the Latest Analyst Ratings

Posted-In: CVS Deutsche BankAnalyst Color M&A Politics Legal Analyst Ratings General Best of Benzinga

 

Related Articles (FRED + CVS)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
HSKACanaccord GenuityMaintains75.0
AVGOMorgan StanleyMaintains265.0
AMATNeedhamMaintains56.0
VOYACitigroupMaintains62.0
VCCitigroupMaintains86.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Credit Suisse Sees 40% Upside In Micron Shares

Fast Money Traders Share What To Buy On A Pullback