Even though Walgreens (WBA) decided to buy almost half of Rite Aid’s (RAD) stores instead of purchasing the whole company, the Federal Trade Commission may still decide to block the deal, warned research firm Leerink Swann. The FTC staff has already prepared to oppose the transaction and could “want to flex its muscle” by doing so, according to the firm, which believes that the odds of the transaction closing “are at best 50/50.”

MARKET CONCENTRATION: Walgreens asserted that the FTC may no longer care about the Herfindahl-Hirschman Index, a measure of market concentration, but the agency does still care about the index, wrote Leerink analyst David Larsen. If the FTC focuses on local market share and counts mail order prescriptions as a competitor to Walgreens, then the deal should be allowed to go through, Larsen believes. However, the agency may choose to focus on national market presence, the analyst stated. Finally, the FTC is “biased” when it comes to the healthcare sector, and its staff generally seems to believe that consolidation causes prices to rise, added Larsen.

OTHER NEGATIVES: Walgreens last week reported low quality third quarter results, according to Larsen. Specifically, the prices of its retail division were low amid “constant reimbursement pressure and competitive forces,” he stated. As a result, the unit’s gross margin was “pressured,” he stated.

TARGET, RATING: Larsen cut his price target on Walgreens to $86 from $90 but kept an Outperform rating on the shares.

PRICE ACTION: In morning trading, Walgreens lost 0.7% to $77 and Rite Aid fell 1.3% to $2.33.