Walgreens gives up on buying Rite Aid, plans to buy 2,000 Rite Aid stores instead

Walgreens has ended its takeover pursuit of rival Rite Aid following resistance from U.S. regulators and instead will buy stores, distribution centers and inventory in a new deal.

The proposed takeover deal, first announced in 2015, was initially for about $9.4 billion but was whittled down to about $6.8 billion earlier this year.

For scrapping the transaction, Walgreens Boots Alliance will pay Rite Aid Corp. a $325-million termination fee. It will pay Fred’s Pharmacy an additional $25 million after the termination of a related asset deal.

Under the new agreement, Walgreens will buy 2,186 stores, three distribution centers and related inventory from Rite Aid for approximately $5.18 billion in cash. Walgreens also will assume the related real estate leases and certain limited store-related liabilities. Rite Aid will have an option, exercisable through May 2019, to become a member of Walgreens’ group purchasing organization.

Walgreens said Thursday that the stores it buys from Rite Aid will be converted to the Walgreens brand “over time.” The stores included in the agreement are located mostly in the Northeast, mid-Atlantic and Southeast. The three distribution centers are in Philadelphia; Dayville, Conn.; and Spartanburg, S.C.

The new transaction is targeted to close within the next six months.

Before the new deal, Deerfield, Ill.-based Walgreens and Camp Hill, Pa.-based Rite Aid faced a complicated task of easing antitrust concerns to complete the buyout. The companies initially expected to sell no more than 500 stores to appease regulators, but that eventually was pushed to 1,200 stores.

The combination of Walgreens, the largest U.S. drugstore, and Rite Aid would have created a drugstore giant with more than 11,000 stores nationally, even with the sale of more than 1,000 stores. That would have been a few thousand more than the nearest competitor, CVS Caremark Corp.

Also on Thursday, Walgreens reported a 5.3% boost in fiscal third-quarter profit to $1.16 billion, or $1.07 per share. Earnings, adjusted for one-time gains and costs, were $1.33 per share.

Revenue rose 2.1% to $30.1 billion.

The results exceeded Wall Street expectations. Analysts surveyed by Zacks Investment Research were looking for earnings of $1.31 per share on $29.68 billion in revenue.

Rite Aid, which also posted earnings Thursday, reported a first-quarter adjusted loss of 5 cents per share on revenue of $7.78 billion.

Shares of Rite Aid dived 26.5% on Thursday to $2.89. Fred’s stock tumbled 22.8% to $9.51. Shares of Walgreens were up 1.7% to $78.37.

UPDATES:

1:30 p.m.: This article was updated with stocks’ closing prices.

11:25 a.m.: This article was updated throughout with additional details.

This article was originally published at 5:25 a.m.