Things are moving very quickly in the drug store world. Investors initially welcomed yesterday’s announcement that Walgreens Boots Alliance (WAG), the just-concluded $103 billion mashup of American and European pharmacy chains, is now set to spend another $17.2 billion for Rite Aid (RAD), the No. 3 player in the U.S.. Rite Aid’s stock bounced 43% and—unusual for an acquirer—Walgreen’s stock rose too, by nearly 7 %.
But then, this morning, both stocks began to drop and currently are about 7% below yesterday’s close. This morning’s phone call to report Walgreens’ earnings—during which the deal was discussed and some details skirted—may not have helped.
The deal, apparently, is all about “synergies,” a word Walgreens’ CEO Stefano Pessina used frequently during the call. Synergies, as we know, typically mean eliminating cost duplications, which, in this case, probably means job cuts and store closings.
All that is supposed to be great news for Wall Street, if not necessarily Main Street. If consummated, the deal will make Walgreens the largest drug store chain in the country. It’s not known what antitrust regulators will require in terms of divestitures in order to bless the deal, and the CEO wasn’t giving much of a hint of his own prediction. “We have tried to figure out what would happen,” Pessina said on the earnings call, “but within the closed walls of our company.”
This was something of a pattern on the call. When asked for specifics on the synergies between the two companies, Pessina demurred again. “We are not giving the specific detail,” he said. “The team is very experienced in accessing these synergies.”
What, ventured another analyst, did the team think about closing underperforming Rite Aid stores, given that some of them are in long term leases? “It is very difficult to judge,” Pessina said.”We need to understand the conditions.”
One wonders whether this lack of specificity is hurting the stock today. Pessina, an Italian billionaire famous for his dealmaking acumen across the pond, is not well-known by investors in this country. “Trust me” may not be quite enough.