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Two of the nation's largest drugstore chains plan to merge. The parent company of Walgreens says it will buy Rite Aid in a deal worth about $9 billion. As NPR's Jim Zarroli reports, the deal will get intense scrutiny from regulators.
JIM ZARROLI, BYLINE: The merger with Rite Aid is part of an effort by Walgreens to keep growing at a time when competition from other retailers is becoming much more intense. Vishnu Lekraj, senior analyst at MorningStar, says big drugstore chains such as Walgreens are having to contend with a lot of new competitors, like grocery stores, online pharmacies and big retail chains such as Wal-Mart and Target.
VISHNU LEKRAJ: There's just so much - so many options out there.
ZARROLI: Walgreens is hoping to stay competitive by expanding its footprint. The deal would give Walgreens almost 13,000 drugstores, easily dwarfing the next biggest chain, CVS. As such a big company, Walgreens will have a bit more power to negotiate better prices with the drug companies. And it could help Walgreens take on another player in the drug business today, the big, powerful pharmacy benefit management companies hired by insurers to drive down the cost of drugs.
LEKRAJ: Because you have three dominant players that process a little bit over 70 percent of all the prescriptions in the U.S. here annually, that's given them a lot of power, and they've demanded pricing concessions from pure play retail pharmacies like Walgreens.
ZARROLI: Lekraj says these pharmacy benefit managers have hurt the drugstores chains, and even with the merger, he says it's not clear Walgreens can do much to counter their influence. But Walgreens is hoping that getting bigger will give it more leverage. Before the merger takes place, it faces some big hurdles. It has to be approved by the Federal Trade Commission, which could stop it from going forward, says antitrust lawyer David Balto.
DAVID BALTO: What they're going to look for, ultimately, is will consumers suffer because of higher prices or worse service because of the transaction?
ZARROLI: And Balto says the landscape for big mergers like this is a lot tougher than it used to be. Regulators are much more skeptical about the impact on consumers. Balto, who used to be an official at the FTC, believes regulators will have plenty of problems with the deal. He says Walgreens and Rite Aid have traditionally competed hard for customers, and once they join forces, that would change.
BALTO: These two firms are very aggressive competitors, and in the markets where they meet, it really makes a big difference to consumers. Permitting this merger would be a tremendous headache for those consumers. They're going to suffer in their pocketbook.
ZARROLI: That doesn't necessarily mean that regulators will reject the merger outright. They could force the chain to sell off some of its outlets, especially in places such as New York, California and Massachusetts, the states where the two chains are most concentrated. Jim Zarroli, NPR News, New York.
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