Walgreens Boots Alliance's (WBA 2.30%) plans to acquire Rite Aid (RAD 20.00%) would effectively create a duopoly in the United States pharmacy market between it and CVS Health (CVS 1.57%).
That could lead federal regulators to not approve the deal, though it's not a cut-and-dried case for the Federal Trade Commission. In a broad sense, recent rulings by U.S. federal agencies have not supported this type of industry consolidation, but it's possible that things could be different here due to extenuating circumstances. In the video below, analysts Kristine Harjes and Michael Douglass speculate on the possible outcomes.
A full transcript follows the video.
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Kristine Harjes: As you mentioned, one of the big questions that's still left here is: will this deal be allowed to go through by the FTC? Of course, they want to prevent this kind of monopolization, or in this case it would be a duopoly, of the retail pharmacy business. Traditionally the FTC doesn't like duopolies and they will shut that kind of thing down.
However, it's my suspicion that given this push toward lower drug prices; I bet the FTC would let it go because of that particular point. If they can say "This is bringing down this exorbitant cost that drugs are taking on Americans, maybe it could be a good thing." They'd rather have that than shut down the duopoly.
Michael Douglass: Neither of us are legal experts so this is totally speculation on our parts, but the other piece is, if you think about just retail pharmacies; you've got CVS, Walgreens, Rite Aid and there's not really anybody else that's of any serious size. When you think about pharmacies that do retail -- essentially retail pharmacies that are owned by other competitors -- you've got Kroger, you've got Wal-Mart, even Costco has made some noise about entering the pharmacy space.
You've got a lot of other ways that people can fill their prescriptions and get their flu shots. I think while in the stand-alone retail pharmacy space it looks like this consolidation would be substantial, when you really think about the broader "How can patients get drugs from stores?" There are a lot of other opportunities outside of these strict retail pharmacies.
We're not even talking yet about mail order pharmacies, specialty pharmacies, and all these other things that are disrupting the industry, to some extent. As a result they're competing in these other ways. In my head there's still a great deal of competition.
