DEERFIELD, IL—Walgreens Boots Alliance Inc. and Rite Aid Corp. capped a day of speculation that the two drugstore chains were near a deal to merge by announcing late Tuesday afternoon that they would do just that. The all-cash takeover by Deerfield, IL-based Walgreen values Rite Aid at $9 per share, for an enterprise value of $17.2 billion including the assumption of Rite Aid debt.

The combination of the nation's second and third largest drugstore chains marks the second acquisition of more than $10 billion within the sector this year. CVS Health Corp., the nation's number one pharmacy chain by sales volume, closed on its $10.1-billion purchase of Omnicare Inc. in August, giving CVS a vehicle for prescription drug delivery to nursing homes.

Assuming that it clears regulatory hurdles, a Walgreens/Rite Aid combination would also be in keeping with increasing consolidation within the broader healthcare industry. “Sweeping changes to health care under the Affordable Care Act and the rise in insured Americans has increased prescription demand, helping increase the total revenue of the nation's retail, mail and specialty pharmacies 7% last year from 2013,” the New York Times reported Tuesday. “At the same time, companies have also been pressured to keep costs down.”

Both Walgreens and Camp Hill, PA-based Rite Aid have acquired smaller competitors in recent years. Along with its 2014 deal to buy European pharmacy chain Alliance Boots GmbH, Walgreens has expanded domestically since 2010 by acquiring Duane Reade, USA Drugs and Kerr Drug. Rite Aid bought out the Brooks and Eckerd chains in 2007.

All told, Walgreens and Rite Aid operate nearly 18,000 stores located mainly in the US, more than twice as many as CVS, which runs 7,870 locations. However, the two chains have lower combined sales than their leading competitor, which reported sales of $139.4 billion in 2014, compared to a total of $103 billion for Walgreens and Rite Aid.

The Times reported that Rite Aid had a market value of about $6.4 billion as of Monday's market close. The pharmacy chain also is carrying about $7.4 billion of debt, according to the Times, citing data from Standard & Poor's Capital IQ.

“Joining together with Walgreens Boots Alliance will enhance our ability to meet the health and wellness needs of Rite Aid's customers while also delivering significant value to our shareholders,” says John Standley, Rite Aid's chairman and CEO. At Walgreens, executive chairman and CEO Stefano Pessina says the two companies' “complementary retail pharmacy footprints” domestically will create “an even better network, with more health and wellness solutions available in stores and online.

A merger between Walgreens and Rite Aid will need to clear antitrust hurdles. However, Washington, DC-based antitrust attorney David Balto, formerly with the Federal Trade Commission, told Reuters that the deal probably would be approved after careful scrutiny. “Drugstore services have evolved substantially in the past several years, and the market is becoming robustly competitive, with substantial competition from supermarkets and mass merchants,” Balto told Reuters on Tuesday.

UBS Investment Bank acted as Walgreens' financial advisor and will also be the sole arranger of bridge financing to help finance the Rite Aid deal. Legal counsel for Walgreens is coming from Simpson Thacher & Bartlett LLP on transaction legal matters and from Weil, Gotshal & Manges LLP on antitrust regulatory matters Citi acted as Rite Aid's exclusive financial adviser, with Skadden, Arps, Slate, Meagher & Flom LLP acting as its counsel on transaction legal matters and Jones Day acting as its legal counsel on antitrust regulatory matters.