Private equity firm could be a white knight for Walgreen-Rite Aid merger

Private-equity giant Cerberus Capital has emerged as a possible white knight if the merger of Walgreen and Rite Aid runs into static with regulators, The Post has learned.

The New York-based buyout firm, headed by reclusive billionaire Steven Feinberg, is now interested in acquiring the 865 drugstores that Walgreen has agreed to divest to settle antitrust concerns about the $9.7 billion deal, sources said.

In fact, Cerberus had participated in Walgreen’s December auction of the stores in question, losing to a winning bid of $950 million from regional drug chain Fred’s, according to two sources close to the situation.

That’s despite the fact that Cerberus, which made its losing bid through the Albertsons grocery chain it owns, had submitted a higher-dollar offer for the stores, the sources said.

Walgreen had rejected Cerberus’ bid partly because it was concerned the Federal Trade Commission would not approve a private-equity buyer, according to the sources.

The sentiment among regulators, insiders said, has been that buyout firms typically do not restore competition to a sector, since they buy and sell their businesses within a few years.

Now, however, the FTC is expressing concerns about the viability of Fred’s as a buyer, as $950 million looks like a big bite to swallow for the Memphis, Tenn.-based chain.

Seeing a potential opportunity, Cerberus officials have recently reiterated their interest in buying the divested stores, according to one source close to the process.

Cerberus “denies it ever contacted the FTC about this transaction or the bidding process,” a Cerberus spokesman said.

Doubts about the deal’s approval have kept a lid on Rite Aid shares. Although Walgreen has agreed to pay $9 a share for its rival, Rite Aid’s shares were recently off 5.6 percent at $6.40.

Investor worries are apparently growing, as the merger agreement technically expired on Friday.

Nevertheless, “I’m not aware of the Walgreen’s merger being in danger of collapsing,” a source with direct knowledge of the deal said.

Walgreen’s or Rite Aid can walk away from their $9.7 billion merger starting Friday, but neither party is expected to do so, sources said. They do not need to extend the merger termination date, but can simply elect not to terminate the deal, according to a well-placed source.

In addition to Cerberus’ willingness to step in and buy the stores, one source said the FTC is not preparing a lawsuit to block the merger.