Walgreens Going Global

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The largest drug store chain in the US, Walgreen Co. (NYSE: WAG) announced today that it has agreed to take a 45% stake in Swiss-based Alliance Boots GmbH, the world’s largest pharmacy-led health and beauty group. Walgreens will pay a total of $6.7 billion for the stake, $4 billion in cash and 83.4 million shares. Walgreens has a three-year option to purchase the remaining 55% of Alliance Boots for approximately $9.5 billion and the assumption of debt. The company expects the 45% investment to be completed by September 1st, pending regulatory approval.

Alliance Boots is privately held following the company’s acquisition by AB Acquisitions Ltd. in 2007. The company had been listed in London prior to that transaction.

Walgreens expects the acquisition to add $0.23-$0.27 to the company’s EPS “in the first year following the completion of the initial step of the transaction,” excluding transaction costs. The company also said, “[C]ombined synergies across both companies to be between $100 million and $150 million in the first year and $1 billion by the end of 2016.” The announcement also noted that “there are no plans for job reductions at either company as a result of the transaction.”

Walgreen’s earnings have been hurt by the loss of the company’s contract with pharmacy benefits manager Express Scripts Inc. (NASDAQ: ESRX). The acquisition of Alliance Boots appears to be an end-run around that issue, but investors appear to be wary of the strategy.

Shares of Walgreens stock are down almost -4% at $30.91 in a 52-week range of $29.80-$45.34.

Paul Ausick