Walgreens Boots Alliance now holds minority stake in drug distributor
DEERFIELD, Ill. — Walgreens Boots Alliance (WBA) is in negotiations to acquire drug distributor AmerisourceBergen Corp., according to published reports.
Representatives of WBA executive vice chairman and chief executive officer Stefano Pessina made “a high-level outreach” to representatives of AmerisourceBergen CEO Steven Collis several weeks ago, The Wall Street Journal reported, citing people familiar with the matter.
WBA wasn’t available for comment, and AmerisourceBergen said it doesn’t discuss potential mergers or acquisitions, the Journal said. WBA is valued at $67.82 billion, and AmerisourceBergen has a market capitalization of $19.65 billion, according to Thomson Reuters data.
WBA currently holds a 26%-27% stake in AmerisourceBergen stemming from their long-term strategic partnership. The Journal said WBA would buy the remaining shares under the deal being considered but noted that offer has not been made. Last year, Walgreens was AmerisourceBergen’s largest customer and accounted for 30% of its revenue.
“Media speculation that WBA is in talks to acquire AmerisourceBergen doesn’t come as a complete surprise, given WBA’s current 27% stake in AmerisourceBergen and their remaining option to bump this stake to 30%,” Jefferies analyst Brian Tanquilut wrote in a research note on Tuesday.
Under a 10-year pact formed in March 2013, Walgreens and AmerisourceBergen expanded their relationship to a 10-year primary distribution agreement for branded and generic drugs. The agreement also included global supply-chain opportunities for AmerisourceBergen, which began accessing generics and related pharmaceuticals through the Walgreens Boots Alliance Development (WBAD) joint venture of then-merger partners Walgreens and Alliance Boots. In another component of the deal, Walgreens and Alliance Boots were granted the right to buy a minority ownership interest in AmerisourceBergen.
In May 2016, AmerisourceBergen WBA announced that they were extending the partnership for another three years. With the move, AmerisourceBergen’s drug distribution contract with WBA and relationship with WBAD were lengthened to 2026. The extension also included an enhanced commitment from WBA to use AmerisourceBergen as its key U.S. distribution partner, while AmerisourceBergen agreed to make certain working capital investments in the relationship and proceed with further capital investments in its distribution network.
Meanwhile, WBA has gradually increased its equity interest in AmerisourceBergen, exercising warrants granted under the long-term partnership.
Still, Tanquilut described WBA’s rationale for a potential deal to buy the rest of AmerisourceBergen as “a little bit of a headscratcher.”
“While we see strategic value in joining forces with a leading drug distributor such as AmerisourceBergen, we believe WBA has already pursued this opportunity when it formed the WBAD purchasing consortium with AmerisourceBergen and acquired its minority stake in the company,” he explained. “WBA has been openly discussing their intention of continuing to pursue vertical-integration deal opportunities, but acquiring the rest of AmerisourceBergen, while financially rational, begs the question on what incremental strategic value the deal would bring, especially in light of recent moves by CVS and Aetna and even Express Scripts buying eviCore.”
For WBA, benefits of acquiring the remainder of AmerisourceBergen include increasing its exposure in the United States and in the specialty pharmacy market, according to Tanquilut.
“As we look for strategic justifications for a full merger between WBA and AmerisourceBergen, one of the first things that come to mind is that AmerisourceBergen is primarily a U.S. operation, so acquiring that company would allow WBA to further expand its U.S. business and effectively reduce the contribution percentage from Boots, at a time when the U.K. market faces both reimbursement and macroeconomic pressures,” he wrote.
“Specialty is an area where WBA doesn’t have enough exposure, and AmerisourceBergen can provide that capability,” Tanquilut added.
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