Walgreen Co. has agreed to buy a 45% stake in the global pharmaceutical, health and beauty retailer and wholesaler Alliance Boots for $6.7 billion in cash and stock.

Walgreen Co., Alliance Boots, Walgreens, Greg Wasson, Stefano Pessina, No7, Soltan, Botanics, Duane Reade, Boots stores, Dominic Murphy, Kohlberg, Kravis Roberts & Co., KKR, Wade Miquelon, Thomas Sabatino, Robert Zimmerman Alliance, Santé Participations S.A.

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Retail News Breaks

Walgreens to buy Alliance Boots stake

June 19th, 2012
Alliance Boots executive chairman Stefano Pessina (left) with Walgreens CEO Greg Wasson

DEERFIELD, Ill. – Walgreen Co. has agreed to buy a 45% stake in the global pharmaceutical, health and beauty retailer and wholesaler Alliance Boots for $6.7 billion in cash and stock.

The deal gives Walgreens the option to acquire the rest of the company in about three years for an additional $9.5 billion in cash and stock.

Walgreens president and chief executive officer Greg Wasson called his company's alliance with London-based Alliance Boots "the first pharmacy-led, global health and well-being enterprise."

Wasson said he and Alliance Boots executive chairman Stefano Pessina have gotten to know each other over the past couple of years, and began the discussions that prompted this deal about 18 months ago.

"Our teams, because we don't operate in each other's geographies, have actually collaborated on initiatives related to pharmacy and other services over the years, and we were able to see the real cultural fit that comes from these two iconic brands with similar heritages and over 100 years of operation," Wasson said during a conference call related to the announcement. "Our folks really worked together well, so we thought that now was the time to really create something new. So we're thrilled to be putting together an international health care platform, to deliver new and unique innovative health care solutions across the world to help patients and payers reduce costs and provide greater access to health care."

Pessina said that the deal with Walgreens represented the culmination of a dream. "I have always believed our industry needed a global player," he said. "This deal will change the dynamic of our industry."

Walgreens and Alliance Boots plan to continue operating their businesses under their existing brand names. Walgreens will keep its headquarters here, and Alliance Boots will maintain its support offices in Europe, including in the United Kingdom, as well as the Boots operational hub in Nottingham, England. The companies said no job reductions are expected, because their operating territories do not overlap.

"We'll become the largest purchaser of prescription drugs and many, many other well-being items," Wasson said. "We're going to be able to begin to co-merchandise products across both companies. We're going to be able to bring Boots brands — No7, Soltan, Botanics and others — into Walgreens stores in the U.S. We have 7,900 drug stores, including Duane Reade, in the U.S. that we can begin to bring Boots products into, and we can also bring Walgreens private label branded product into Boots stores and other locations across the world."

Other opportunities that will result from the partnership of Walgreens and Alliance Boots include procurement synergies — such as prescription drug, over-the-counter and front-end purchasing, and indirect spend — as well as the sharing of best practices in pharmacy operations, health and wellness services, and logistics.

Walgreens and Alliance Boots together operate more than 11,000 stores in 12 countries, and they also have the largest global pharmaceutical wholesale and distribution network, with more than 370 distribution centers delivering to more than 170,000 pharmacies, doctors, health centers and hospitals in 21 countries.

The portfolio of retail and business brands will consist of Walgreens, Duane Reade, Boots and Alliance Healthcare as well as such global health and beauty product brands as No7, Botanics and Boots Laboratories.

Completion of the initial investment, subject to various regulatory approvals, is expected by September 1. When that step is completed, Wasson along with Walgreens' executive vice president and chief financial officer Wade Miquelon; executive vice president and general counsel Thomas Sabatino; and senior vice president and chief strategy officer Robert Zimmerman will join the Alliance Boots board.

At the same time, Alliance Boots' Pessina and Dominic Murphy, director and member of investment firm Kohlberg, Kravis Roberts & Co. (KKR), a large stakeholder in Boots, will join the Walgreens board. Through its funds, KKR will be a key shareholder of Walgreens. Alliance Santé Participations S.A., of which Pessina is a director and whose ultimate ownership is a family trust, will also hold a significant stake in Walgreens.

The transaction is expected to be accretive to Walgreens net earnings per diluted share in the first year following completion of the initial step of the transaction, by around 23 cents to 27 cents, excluding onetime transaction costs. Walgreens expects combined synergies across both companies to be $100 million to $150 million in the first year and $1 billion by the end of 2016.

Walgreens said it plans to finance the cash payment deliverable at the initial closing through existing cash and new borrowings.

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