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Rite Aid’s Odds of Finding Suitor May Improve With Sprint Ruling

Bloomberg logoBloomberg 2/13/2020 Joshua Fineman

(Bloomberg) -- Potential buyers of Rite Aid Corp. may decide to revisit bidding for the company after a judge opened the door by allowing T-Mobile US Inc. to purchase Sprint Corp., partly on a theory of a “weakened competitor.”

Judge Victor Marrero ruled Tuesday that T-Mobile can buy Sprint, partly after writing that Sprint’s financial situation remains “poor” and that at best the company is “struggling to even tread water.” Marrero writes that Sprint falls within the framework for a “weakened competitor” as established by an earlier case.

The judge’s decision is an important one as in the past the “weakened competitor” or “failing” firm defense hasn’t been a convincing argument in antitrust cases. Now deals that may have previously been rejected by courts or antitrust regulators, such as one for Rite Aid, might go differently, legal experts say.

Walgreens Boot Alliance Inc. was rebuffed by the U.S. Federal Trade Commission in 2017 when it attempted to purchase Rite Aid over skepticism there would be enough competition left in the drugstore industry. Walgreens eventually agreed to buy almost 2,000 stores in a revised pact. On Thursday, Rite Aid gained as much as 13%, the most intraday in more than a month.

“I do think there may be companies that either didn’t get a merger approved or are contemplating a merger are probably re-evaluating whether this applies to their situation,” Joel Mitnick, an antitrust partner at Cadwalader, Wickersham & Taft LLP, said in a phone interview. “It’s been very very difficult to ever persuade the agency or judges of the failing company defense” in the past.

Jennifer Rie, a senior litigation analyst at Bloomberg Intelligence agreed, but with a caveat.

“This judge gave more room to the weakened competitor defense. But there was some real evidence there regarding Sprint’s demise,” Rie said.

Sprint, T-Mobile Merger Win Could Bolster Struggling Firm Defense

To contact the reporter on this story: Joshua Fineman in New York at jfineman@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk

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