Why The FTC Won’t Let Walgreens Merge With Rite Aid, Plus Ride-Sharing By the Numbers

By 06.30.17

morning brew

Here’s your hand-crafted Brew for June 30th

QUOTE OF THE DAY

“Innovation distinguishes between a leader and a follower.” — Steve Jobs

Market Snapshot

  • Major U.S. indexes sank, following an off day for tech.
  • Q1 GDP was revised up to 1.4% from 1.2%.
  • Gold fell on fears that central banks might scale back monetary policy.
  • Japanese inflation crept up for a fifth straight month.

Just The Rite Price

If you walk into the Federal Trade Commission HQ, spiral your way down to its deepest sublevels and walk into the furthest room in the darkest corner, you’ll find a small group of robed antitrust regulators maniacally stamping a big, fat “DENIED” on every request they get.

Or so it seems.

The latest: FTC pressure is forcing Walgreens (+1.66%) to withdraw its $9.4 billion merger with Rite Aid (-26.46%).

Instead, the country’s number one pharmacy is snapping up nearly half of Rite Aid’s 4,523 stores for $5.18 billion.

What gives, FTC?

Okay, let’s be fair. The FTC’s not that bad.

But when you line up a recent string of blocked mergers (think DraftKings & FanDuel, Staples & Office Depot and Anthem & Cigna), it does seem to feel that way.

Here’s a different way to look at it. Had Walgreens merged with Rite Aid, the pharmaceutical giant would’ve eclipsed the size of CVS faster than you can say Terbinafine (that’s antifungal cream…not that we’d know anything about that).

But there’s more. An army of 13,000 Walgreens would’ve dwarfed the industry’s third-largest competitor: Fred’s…poor ol’ Fred and his adorable 600 stores.

Why does that matter? Had the FTC not brought down its antitrust hammer, Walgreens could’ve held a dangerous amount of bargaining power over policies and drug prices.

And no one needs another “pharma bro.

So what does this new deal bring?

For Walgreens? Key store expansion in the Northwest and Mid-Atlantic, as well as $400 million in cost savings over the next three years.

For Rite Aid? This little transaction just might be what the doctor ordered. CEO John Standley is looking to emphasize the profitability of remaining stores and curb its exposure to falling drug reimbursement rates.

And although it’ll hardly make a dent, the $325 million termination fee Walgreens must now fork over to Rite Aid will cut into Rite Aid’s massive pile of debt…even if that pile is $7 billion.

For Fred(s)? Well, let’s just say he’s clingin’ on to those 600 stores for dear life.

Pain in the Ads

No cord cutters, no problem. AMC just announced it’s bringing ad-free streaming to cable TV for $5 a month. But the popular drama network isn’t facing off against Netflix and Hulu Plus alone.

After finally getting off hold with customer service…it’s teaming up with Comcast to tap into AMC’s cult of frantic superfans, allowing them to indulge in all the commercial-free zombies, martial arts and meth they could ask for.

And with 19 million Comcast customers tuning into AMC, even a small slice of that pie would taste pretty sweet.

But in true Comcast fashion, it’ll have its cake and eat it too.

Taste of the Good Life

Airbnb’s gone from cash-strapped travelers crashing on deflated air mattresses to three-piece suit wearin’, Gatsby livin’ socialites—introducing: “Airbnb Lux.”

After opening its home to Airbnb Select—where the host keeps your pillows fluffed and your towels animal-shaped—and acquiring Canadian-based Luxury Retreats for $300 million, Airbnb’s craving a taste of the good life.

“Airbnb Lux” (not the official name—just what the cool kids are calling it) is a beta rental service for mega-homes, mansions and penthouses—and more expensive living means more expensive pricing.

For Airbnb, it’s a strong step forward in justifying that $31 billion valuation…

What Else Is Happening…

  • Blue Apron (UNCH) finished unchanged after its first day of public trading.
  • Microsoft (-1.88%) acquired Cloudyn, an Israeli cloud startup.
  • Ford (+0.72%) introduced a new research team dedicated solely to AI and robotics.
  • Alibaba (-2.18%) is experimenting with its own “Amazon Echo” that speaks Chinese.

Economic Calendar


Water Cooler

By the Numbers: Ride-Sharing Rumble

Yesterday, Uber announced that at 7:29:06 AM GMT on May 20th, the ride-sharing giant officially crossed the five billion ride milestone. According to [ENTER CEO HERE], 156 trips all began at the same exact moment, so each driver has been awarded a bonus of $500.

This is a much-needed pick-me-up for Uber, but the embattled ride-sharer still remains under a cloud of scandals, management woes and intense competition. And a certain overly-friendly, mustached foe just might be gaining ground:

255%: How much more frequently Uber was downloaded than Lyft in Q1 2015

70%: How much more frequently Uber was downloaded than Lyft in Q1 2017

-7%: Change in Uber’s market share in Q1 2017

142%: Year-over-year increase in Lyft’s Q1 2017 rides

4.4: Average star rating for Lyft on the iOS app store

1.8: Average star rating for Uber

  • 35%: 1 and 2-star app store customer reviews that reference “Lyft”

Whether you think Uber has achieved full market penetration or you chalk the trend up to a deadly concoction of competition and screw ups…two things are crystal clear:

  1. Uber better get its act together to win over riders and keep them coming back
  2. Lyft is rocking the stache with increased rides and increased favorability

Will Lyft keep cookin’ with gas? Will Uber crash and burn? Get your popcorn ready, folks…


The Breakroom

Interview Question of the Day

I am a 5 letter word.

If you remove my 1 letter, I will be a country.

If you remove 2 letters, I will be opposite of myself.

If you remove 3 letters, I will be a preposition.

What’s the word?

(Solution)

Who Am I?

  1. I turned a $40 investment into a $6 billion fashion brand.
  2. I started my company in Queens, NY.
  3. I’m a star on a network TV show.
  4. I recently started a co-working space called Blueprint and Co.

(Any guesses?)

Stat of the Day

$750,000

That’s how much money Phil Jackson made for each of his 80 wins during his three-year tenure as the Knicks’ President.


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