The retail pharmacy channel had an interesting week as we head toward the end of 2016, with the news that Fred’s Pharmacy chain is planning to purchase 865 Rite Aid store locations. This sale is motivated by the proposed merger between Rite Aid and Walgreens which I covered earlier in 2016.

A number of weeks ago the proposed merger was shifted to an early 2017 completion date because of some regulatory situations. The Rite Aid/Walgreens group decided to sell these locations in an effort to satisfy the Federal Trade Commission and some of their concerns over the potential monopoly the combined entity would have in certain geographic areas.

The exact locations of the Rite Aid locations being sold off to Fred’s Pharmacy has not been disclosed, and will not be disclosed until everything is finalized. The news yesterday had Rite Aid stock price jump 5% overall, and if the transaction is approved, the acquisition would vault Fred’s to the 3rd largest drug store chain in the United States.

Fred’s Pharmacy is a southeastern U.S. based regional drug store brand which also has a division of deep discount stores that compete with Dollar Tree and Dollar General. The company, according to financial news sources, is in the middle of a rebranding strategy to move away from being a discount retailer and shifting their focus to being a health and wellness focused drug store retailer. This transaction will provide them with a great opportunity to complete that type of rebranding effort. That was confirmed by the response in the stock market, with Fred’s Pharmacy shares jumping 81% at one point.

The Walgreens/Rite Aid group had to make some sort of move to divest locations to satisfy the anti-trust regulatory process. The reality in this market is that when you do a “channel check” on retail drug stores, Walgreens had just a few options to make a deal based on the current status in that market space currently. Then I read in Forbes that one of the top executives at Fred’s Pharmacy handled real estate transactions on locations for Walgreens in his most recent previous job, I started to understand the dynamics of this deal and how it was consummated.

The regulatory road has had some hurdles for Walgreens and Rite Aid because it will create a huge company of 12,000 store locations. The merger could benefit consumers because of the power they could possess for obtaining better drug prices from the pharmaceutical distribution companies. The merger could also be a negative for consumers because the company could set higher prices on other products leaving the consumer with little competitive options that could provide savings.

Fred’s is going to greatly expand their presence in the market with their investment of around $900 million to reinvigorate the company and help it to compete with larger regional and national marketplace players.

The deal makes sense for Walgreens/Rite Aid because their merger is estimated at over $9 billion and would completely reshape the retail drug store industry space in the U.S. if it is approved. The areas of health, beauty, and personal care are always in demand by the American consumer and that trend is not about to change anytime soon. Walgreens is planning on having the capability to provide all of those needs in a “one stop” shopping experience for the consumer.

This all bears watching as we will soon flip the calendar to 2017 and watch as the huge companies all get even larger through M&A activity.

(Some background information, statistics, and stock market data courtesy of CNBC, Forbes, and Yahoo! Finance)