(Reuters) - The U.S. Federal Trade Commission is not satisfied with Walgreens Boots Alliance Inc's <WBA.O> plan to divest stores to win antitrust clearance for its acquisition of Rite Aid Corp <RAD.N>, Bloomberg reported, citing people familiar with the matter.
The FTC isn't convinced that Walgreen's proposal to sell 865 drugstores to Fred's Inc <FRED.O> would do enough to preserve competition that would be lost in the $9.4 billion tie-up, Bloomberg reported on Friday. (http://bloom.bg/2iJXpwf)
The FTC is also unlikely to complete its review of the deal before the deadline of Jan. 27 to close the transaction, the Bloomberg report said.
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In October, Walgreens said it was "confident about this deal," despite having to postpone the closure of the deal by three months to the end of January. The company also included Rite Aid's profit in its full-year forecast to show its belief in closing the deal.
If the deal is not completed, it would be a "massive downside" for Rite Aid with its stock likely to trade at $3.50 or below, Evercore ISI analyst Ross Muken said in a note.
Rite Aid's shares were down 10 percent at $7.73 in afternoon trading. The bonds of the junk-rated pharmacy chain also plunged, dropping by roughly four points.
Walgreens shares were down 2.4 percent in heavy trading, while Fred's was down 3 percent.
"For Walgreens, the transaction is a more modest negative ... We would not expect WBA to sit on the capital for very long and would look for a combination of share repurchases and additional M&A in the not-too-distant future," Muken said.
Walgreens, the biggest drug store chain in the United States by store count, will have to pay Rite Aid a termination fee of $325 million if the FTC blocks the deal.
"We still believe Walgreens will work as hard as possible towards completing the acquisition. WBA has already extended the acquisition date once and we believe will do so again if necessary," Barclays analysts wrote in a note.
Walgreens declined to comment. Rite Aid, Fred's and the FTC could not be reached for comment.
(Reporting by Abhijith Ganapavaram and Siddharth Cavale in Bengaluru; Editing by Savio D'Souza and Maju Samuel)