The media has been buzzing about the acquisition of RiteAid, the third largest drugstore chain in the nation, by second largest chain, Walgreens for $9.4 billion. In many markets across America this will create a huge monopoly for Walgreens, leaving CVS as the only other major player in the industry. Walgreens and RiteAid are currently the only two drugstores in walking distance of the Rose Hill Campus and soon students will only have one option.
These multi-billion dollar transactions that the US has been approving can have detrimental long-term effects on regional economies, as well as the national and global economies as a whole. In the past 10 years alone, numbers of major competitive companies have been cut by up to 50 percent, in several industries most notably in the airline and banking industries.
In 2005, Cincinnati-Northern Kentucky International Airport (CVG), a major hub for Delta Airlines, was the fifth busiest airport in the nation, serving 23 million passengers annually. This year, the airport has served less than five million passengers, an 80 percent decline in just ten years and dropping to the 54th busiest in the America. The downturn began in 2008, when Delta acquired now-defunct Northwest Airlines, which operated two nearby hubs in Detroit and Minneapolis.
Today, Delta still operates a small connecting hub at the airport which has since become more of a ghost town than an airport – there are five terminals built at CVG, but only one has been used since 2012. The merger hurt the local economy more than just by decreasing flights. From 2006 until the end of 2014, Cincinnati was the most expensive airport to fly though in the United States, with an average ticket price of $570. Today, it is still usually cheaper to fly from New York to the West Coast than to Cincinnati, which is only about an hour away by plane.
Outside of the airline industry, banks have been one of the biggest culprits of hurting the economy by way of mergers and acquisitions. In recent years, Bank One, Wachovia and National City have all been swallowed up into Chase, Wells Fargo and PNC banks respectively.
True, these transactions have made it more convenient for customers who travel across the country often. But after the Chase merger, over 10,000 former Bank One employees lost their jobs. When Wells Fargo bought Wachovia in 2009, the bank terminated over 11,000 employees in North Carolina.
Perhaps the most controversial of these bank transactions was the purchase of National City Bank by PNC in 2008. We all remember the government bailouts of nearly every major bank remaining after the collapse of Lehman Brothers. The loans, or “bailouts” intended to keep major banks afloat to prevent more disastrous economic conditions were part of Troubled Asset Relief Program, and are known as TARP funds. Of the 25 largest banks in the US, National City was the only bank to be denied TARP funds by the federal government. What makes this deal more controversial is that PNC used the TARP funds that were loaned to PNC by the government to purchase National City for $5.5 billion.
National City stakeholders were furious. Congressman Dennis Kucinich even lead a movement in the house to stop the merger, claiming it was a blatant misuse of federal funding given to PNC. TARP funds were given to dozens of banks to save them from toxic investments during the great recession, and many believed the funds given to PNC to purchase National City should have been loaned to National City to save itself from troubled assets that were plaguing the global economy.
PNC is the only corporation to date that has used government funds to buy out another company. The deal ultimately cost more than 15,000 National City employees their jobs.
Today, we are in the midst of another historic acquisition. If the new Walgreens-Rite Aid merger is approved by regulators, the combined market share would sit at 46.5 percent, putting the newly combined chain ahead of current market-leader CVS’s 30.9 percent.
As of now, the only thing stopping the deal is the threat of intervention by the government due to antitrust laws. Currently, the offer from Walgreens states that the deal will only be valid if less than 1,000 stores between the two brands are forced to close. Though Walgreens and Rite Aid are diverse enough that some states like Illinois and Texas have no overlap, much of the Northeast and Lower Great Lakes do. The combined brand would own over 12,000 stores in California, just under 11,000 in New York and about 5,000 in Ohio. The divide between Walgreens and Rite Aid market shares in California and Ohio are split nearly 50/50, meaning these states are the most likely to see forced closings by the government to stop the company from holding a monopoly in those regions. New York State has a higher presence from Rite Aid than Walgreens; however, the government could still intervene in areas of New York if they believe a monopoly is imminent, the same applies to other states like Massachusetts.
The last time the United States Government passed a major antitrust law to limit the formation of monopolies was the Federal Trade Commission Act in 1914. As we can see from recent history, the U.S. has failed to prevent mergers and acquisitions that devastate local economies and allow price gauging by corporations. It has been 101 years since the last time our government passed legislation to prevent monopolies, perhaps Walgreens-Rite Aid is the place to pick up where we left off. It is long overdue.
Matthew Calhoun, GSB ’17, is a finance major from Springboro, Ohio.
