Walgreens, Rite Aid asset purchase agreement could impact Upstate distribution jobs

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Rite Aid's distribution center at 789 Flatwood Industrial Drive in Spartanburg County employs 600 people. The facility will be sold along with three other distribution centers as part of the drug store chain's asset purchase agreement with Walgreens.

The fate of hundreds of distribution jobs in the Upstate could be decided during the next six months.

Two of the nation’s largest retail drug store chains — Illinois-based Walgreens Boot Alliance (WBA) and Pennsylvania-based Rite Aid Corp. — announced on Thursday, June 29, they had entered into a $5.175 billion asset purchase agreement.

Walgreens operates a nearly 700,000-square-foot distribution center at 101 Alliance Parkway in Anderson County, as well as a 500,000-square-foot distribution facility at 350 Raco Parkway in Jackson County, Ga. Both facilities employ hundreds of workers.

Rite Aid has its $90 million, 900,000-square-foot distribution center that it opened in May 2016 at 789 Flatwood Industrial Drive in Spartanburg County. The facility employs 600 people.

Walgreens and Rite Aid officials have not said whether the deal will result in the consolidation of these facilities. But they have also not said if all of the facilities will remain open if federal regulators approve the deal.

“We certainly hope the Spartanburg facility will remain open,” said Spartanburg County Councilman David Britt. “It’s a state-of-the-art facility. Johnson Development did an outstanding job. It’s well managed. [Employees have] proven themselves during the past year. If they choose to close, it will be unfortunate. But we have a lot of companies looking at Spartanburg County. I’m confident that facility wouldn’t be vacant for long. We would love to have Walgreens here in Spartanburg.”

The most recent agreement replaced a previous merger proposed in October 2015 that would have enabled WBA to acquire all outstanding shares of Rite Aid and to sell 865 stores and “certain other assets” to Fred’s Inc., headquartered in Tennessee.

“This new transaction extends our growth strategy and offers additional operational and financial benefits,” said Stefano Pessina, CEO of Walgreens, in a statement. “It will allow us to expand and optimize our retail pharmacy network in key markets in the U.S., including the Northeast, and provide customers and patients with greater access to convenient, affordable care. We believe this new transaction addresses competitive concerns previously raised with respect to the prior transaction and will streamline and simplify the transition for customers, team members and other stakeholders.”

Rite Aid said the decision to terminate the merger was made after it received feedback from the Federal Trade Commission that led it to believe “the parties would not have obtained FTC clearance to consummate the merger.”

Under the terms of the new agreement, Walgreens will purchase 2,186 Rite Aid stores primarily throughout the Northeast, Mid-Atlantic, and Southeast. Walgreens did not say whether it plans to close stores.

The deal also includes three Rite Aid distribution centers in Dayville, Conn., Philadelphia, Penn., and Spartanburg County.

Rite Aid said it will provide certain transition services to Walgreens for up to three years after the transaction closes.

Walgreens will pay Rite Aid a $325 million termination fee related to the merger.

Fred’s said it will receive $25 million as reimbursement for expenses associated with the terminated merger.

“While we believe that pursuing the merger with WBA was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets,” said Rite Aid Chairman and CEO John Standley, in a statement. “The transaction offers clear solutions to assist us in addressing our pharmacy margin challenges and allows us to significantly reduce debt, resulting in a strong balance sheet and improved financial flexibility moving forward.”

Rite Aid and Walgreens said the agreement is subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and other customary closing conditions, but does not require a shareholder vote.

The companies said they expect the agreement to close in about six months.

Rite Aid said it will continue to operate EnvisionRx, its pharmacy benefit manager; RediClinic; and Health Dialog.

Walgreens spokesman Phil Caruso declined to comment on his company’s plans for the three distribution centers in the Upstate and Georgia.

“It’s still very early in the process,” Caruso said.

A Rite Aid employee at the Spartanburg County facility said he and his coworkers were told their jobs are secure.

Rite Aid signed a 15-year lease on the facility, which sits on almost 97 acres of Spartanburg-based Johnson Development’s more than 1,400-acre Flatwood Industrial Park.

Johnson Development sold Rite Aid’s facility in April for nearly $65 million to Bel Flatwood LLC, an affiliate of a fund managed by the global firm Eaton Vance.

A spokesman for Eaton Vance said the lease includes expansion capability. He said the facility is “a great asset” and the company believes it will remain open for “many years to come.”

Walgreens has one year remaining on the 10-year lease it signed for the distribution facility it opened in 2008 in Jackson County, Ga.

Property records showed the company owns the distribution center it opened in 2007 in Anderson County.

Economic development officials in Anderson County could not be reached for comment.

Jim Shaw, president and CEO of the Jackson County Area Chamber of Commerce, said he had not yet heard from Walgreens, but he hopes the company will choose to keep the facility open.

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