Walgreens-Rite Aid Merger: How Will The Combined Entity Compare With CVS?

June 16th, 2016 by Trefis Team
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Last year, Walgreens (NASDAQ:WBA) announced its plans to acquire Rite Aid (NYSE: RAD) in a deal worth $17.2 billion. After the completion of the deal, which is expected to close in the second half of 2016, Rite Aid will be a wholly owned subsidiary of Walgreens Boots Alliance, and is expected to initially operate under its existing brand name. Walgreens expects the transaction to be accretive in its first year after completion, and also expects to realize annual synergies in excess of $1 billion.

The Walgreens-Rite Aid combination will become a strong competitor for CVS, the largest pharmacy retail company, both in terms of revenues and earnings. Below we compare the sales and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of the combined Walgreens-Rite Aid entity with those of CVS.

Screen Shot 2016-06-15 at 6.56.15 PM

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We expect the revenues of the combined entity to be less than that of CVS, while the EBITDA margins will be similar to CVS’.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com.
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our analysis for Walgreens

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