Essay About Rite-Aid And Advantage Of Economies Of Scale

Walgreens Merger
We believe that this merger/acquisition would be beneficial for both parties involved.  Currently, Walgreens has a value of about $23.7 billion and Rite-Aid has a value of about $13.4 billion. With these two companies merging, there is now a single major player that competes with CVS in the convenient store/pharmacy market. In addition to the forecasted market share dominance, there were other several reasons that would cause Rite-Aid and Walgreens to merge.  One reason they may have chosen to merge is to access new markets. Similar to how CVS is very prominent in the NYC area but is sparse in WNY, Walgreens and Rite-Aid often times do not operate in the same areas or towns.  With one unified company, their reach in the market will essentially be in the entire United States. Another reason they may have chosen to merge is that it will reduce the risk for both firms.  When on their own, bad market conditions (in a certain region) could cause one company to lose significantly.  When “working” together, if one company struggles, the other company is there to help them back up or to just lessen the losses.  When the two companies merge, their overall market risk will be lessened by each other.  A third example of why they have chosen to merge is that now they can take advantage of economies of scale.  In general, when a company is efficient at using economies of scale, the more you make/produce, the cheaper it is to produce on a per product scale.  With Rite-Aid and Walgreens merging, they will be able to take advantage of economies of scale in regards to manufacturing, production, and distribution. By taking advantage of economies of scale, the new company will be able to reduce its costs per item and therefore increase its profitability. While the bottom lines may add up to a total, (x+x=2x), this reduction in cost, or increased corporate efficiency would cause the new entity to become more valuable (x+x=>2x+) when combined with other advantages such as increased market presence.