Walgreens Grows Internationally With Alliance Boots Stake
This article was originally published in The Pink Sheet Daily
Executive Summary
Walgreens is acquiring 45% of the U.K.-based international retailer and wholesaler Alliance Boots, which runs pharmacies in 11 countries, with an option to acquire the entire firm in three years.
Walgreen Co. is making a bid to become an international drug store operator by purchasing a stake in U.K.-based Alliance Boots GMBH, with an option to buy the entire firm within three years.
In a deal announced June 19 and expected to close by Sept. 1, Walgreens will pay $6.7 billion in cash and stock for a 45% stake in Alliance Boots, which through its retail and wholesale businesses has a presence in 25 countries in Europe, Asia and the Middle East.
Walgreens is describing the move as “a strategic transaction … to create the first global pharmacy-led, health and well-being enterprise.” Together, the companies would have 11,000 stores in 12 countries and be the “world’s largest purchaser of prescription drugs and many other health and well-being products,” the firms said.
Walgreens is the largest drug store chain in the U.S. with 7,890 stores in all 50 states, D.C. and Puerto Rico. Its fiscal 2011 sales were $72.2 billion, and it filled 819 million prescriptions in the year.
Alliance Boots operates 3,330 stores (including associates and joint ventures), mainly under the Boots name, in 11 countries. Of these, more than 3,200 have pharmacies, which dispense 260 million prescriptions a year. Revenues from its health and beauty product sales (including prescription dispensing) were £6.7 billion ($10.4 billion) in the U.K. and £965 million in Norway, Ireland, The Netherlands, Thailand and other countries.
Alliance Boots says it is the largest pharmaceutical wholesaler in Europe, with £16.8 billion in pharmaceutical wholesale revenue. Its 370 distribution centers, operating mainly under the Alliance Healthcare name, deliver to more than 170,000 pharmacies (including 4,400 members of its Alphega Pharmacy network of independent pharmacies), doctors, health centers and hospitals in 21 countries. The wholesaler’s services include offering a range of generic drugs marketed under its own brand name, Almus, in several countries.
The company also owns three manufacturing facilities that produce health and beauty products as well as special prescription medications for individual use.
Starting two-and-a-half years from the closing of the initial transaction, Walgreens will have six months to purchase the remaining 55% of Alliance Boots for $9.5 billion in cash and stock, at the current Walgreens share price and dollar-pound exchange rate. Alliance Boots currently is owned by the private equity firm Kohlberg Kravis Roberts & Co. and other private investors.
Walgreens said it believes the transaction will be accretive to earnings in the first year following completion of the initial transaction by about $0.23 to $0.27 per share. This roughly balances the amount of earnings per share lost through its contract disagreement with Express Scripts (Also see "Express Scripts Dispute With Walgreens Spotlights PBMs’ Thirst For Deeper Discounts" - Pink Sheet, 9 Jan, 2012.). Walgreen’s third quarter earnings report, also released June 19, said the negative impact of no longer being part of the PBM’s pharmacy provider network was 6 cents for the quarter.
Other firms in the U.S. drug distribution space have also been turning to overseas markets for continued growth. Cardinal has been particularly aggressive with its expansion in China (Also see "Cardinal’s China Operations Running “Ahead Of Plan,” More Expansion Ahead" - Pink Sheet, 7 Nov, 2011.). Alliance Boots has a presence in China through a drug wholesale joint venture with Guangzhou Pharmaceuticals Corporation. It has also signed a letter of intent to buy a stake in the wholesaler Nanjing Pharmaceutical Company Limited.