Consumer staples and sector-related exchange traded funds were weaker Wednesday after a major consolidation in the industry.
On Wednesday, the Consumer Staples Select SPDR (NYSEArca: XLP) was 1.5% lower, First Trust Consumer Staples AlphaDEX Fund (NYSEArca: FXG) was down 1.3% and Vanguard Consumer Staples ETF (NYSEArca: VDC) dipped 1.2%.
Walgreens Boots Alliance (NasdqGS: WBA) agreed to acquire Rite Aid (NYSE: RAD) for $9.4 billion on Tuesday, combining two of the three largest drugstores in the U.S., the Wall Street Journal reported.
“With this acquisition, we are accelerating a long-term objective that we knew we needed to address: to strengthen our presence and coverage nationally across the U.S.,” Walgreens Boots Chief Executive Stefano Pessina told the WSJ.
After the deal, Walgreens will have a combined store count of near 13,000, with annual revenues worth $100 billion, whereas its competition, CVS Health (NYSE: CVS), has 7,800 stores, reports Neil Stern for Forbes.
Over the long-term, Walgreens’ move could help the company gain a greater position within the health care market and lower costs as pharmacy represents about 70% of sales at both Walgreens and Rite Aid.
While both company stocks jumped on Tuesday, WBA plunged 10.3% Wednesday after concerns over antitrust issues surfaced and the company revealed that it will cut buybacks to help pay for the acquisition, reports Ameet Sachder for the Chicago Tribune.
WBA makes up 4.0% of VDC, 5.2% of FXG and 4.9% of XLP.
Consumer Staples Select SPDR
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Full disclosure: Tom Lydon’s clients own shares of XLP.
Max Chen contributed to this article.