Walgreens profit beats, Rite Aid deal seen closing in 2017

[October 20, 2016]  By Sruthi Ramakrishnan

(Reuters) - Drugstore operator Walgreens Boots Alliance Inc reported a better-than-expected quarterly profit, helped by cost cutting, and said it now expected its acquisition of Rite Aid Corp to close on Jan. 27, three months later than planned.

Walgreens said in September it would likely have to divest between 500 and 1,000 stores to get regulatory clearance for the $9.4 billion deal.

Walgreens, the No. 1 U.S. drugstore operator by store count, had previously said it expected it would need to divest not more than 500 stores and that the deal would close on Oct. 27.

The company said it expected to divest stores to win approval for the deal by the end of 2016.

Supermarket chain Kroger Co <KR.N> is questioning whether to proceed with buying divested stores from Walgreens, a source familiar with the situation said on Wednesday, casting doubts on the future of the Walgreens-Rite Aid deal.

Kroger and Walgreens representatives declined to comment.

Walgreens wants to buy Rite Aid to widen its footprint in the United States and negotiate for lower drug costs.

Walgreens' shares were up 1.7 percent at $78.50 in premarket trading after closing at their lowest in five months on Wednesday. Rite Aid's shares were up about 4.4 percent at $6.95.

"The longer the (merger) process takes the more likely it is to close as it signals a delay in sorting out the divestiture package vs. a true blockage by FTC," Evercore ISI analyst Ross Muken wrote in a client note.

Walgreens said on Thursday its net income attributable to the company rose to $1.03 billion, or 95 cents per share, in the fourth quarter ended Aug. 31, from $26 million, or 2 cents per share, a year earlier.

The company had recorded a loss of $143 million on a previously held equity interest and $479 million in other expenses in the year-ago quarter.

Walgreens said it met its goal of achieving $1 billion in synergies in June from its Boots Alliance acquisition. It is also working on cutting $1.5 billion in costs by the end of its fiscal year ending in August 2017, including by closing about 200 stores and reorganizing operations, among other measures.

Excluding items, the company earned $1.07 per share in the quarter, beating the average analyst estimate of 99 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose marginally to $28.64 billion, missing the average estimate of $29.06 billion.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Martina D'Couto and Shounak Dasgupta)

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