Leerink analyst David Larsen is placing on 30% odds on the Walgreens Boots Alliance (NASDAQ: WBA)/Rite Aid (NYSE: RAD) deal being approved by the FTC, which they believe is higher than consensus.

Larsen said a MEDACorp specialist whom they spoke with believes the FTC staff is potentially putting together a case and a recommendation to block the deal, but it has yet to pass onto the Commissioners who will be making the final call.

The MEDACorp specialist gives the deal a 40-45% chance of clearing the FTC, but Larsen sees the odds closer to 30%. "We believe that the career staff of the FTC have been busy lately "calling" witnesses and gathering information, which is a likely indication that they are preparing a formal recommendation to block the transaction," he commented. "The staff may believe that Fred's simply does not have a strong enough P&L or a large enough presence in the market to replace RAD. However, a 'block' recommendation by the staff will go to the acting FTC Bureau Director Tad Lipsky, and it will then proceed to the Commissioners for a vote."

Larsen said an upside surprise is possible with just two Commissioners currently on the FTC board: interim Chairman Maureen Ohlhausen (R) and Commissioner Terrell McSweeny (D). "Given that Ohlhausen is a front-runner for the permanent position, a split vote between her and McSweeny may not look as good for her candidacy as a unanimous decision, in our MEDACorp specialist's view," Larsen commented. "As such, Ohlhausen could be more inclined to block the deal if we assume McSweeny is against the merger. Conversely, the specialist noted the possibility that the two Commissioners may trade votes on different issues, and McSweeny may not have a strong opinion on the merger because she is more of a "consumer protection" person and her appointment at the FTC will expire this September. Even though the street seems to have already assumed the deal will not go through, the specialist's view indicates that FTC may still clear the deal and we may end up with an upside surprise."