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Walgreens to Purchase 45% of Alliance Boots

Walgreen Co. and Alliance Boots GmbH have entered into a strategic transaction designed to bring together the strengths and expertise of both companies to create the first global pharmacy-led, health and well-being enterprise. This transaction will bring together two leading companies with iconic brands, complementary geographic footprints, shared values and a heritage of trusted health care services, through pharmaceutical wholesaling and community pharmacy care, dating back more than 100 years.

Together Walgreens and Alliance Boots would have:

  • unmatched supply chain and procurement expertise, offering customers innovative solutions and optimal efficiencies;
  • an unparalleled portfolio of retail and business brands (Walgreens, Duane Reade, Boots and Alliance Healthcare), as well as increasingly global health and beauty product brands (No7, Botanics and Boots Laboratories);
  • diversified and robust profit pools across the U.S., Europe and key emerging markets; and
  • a unique platform for growth in developed and emerging markets.

Walgreens will invest approximately $6.7 billion in cash and stock (comprised of $4 billion in cash and 83.4 million shares) in exchange for a 45% equity ownership stake in Alliance Boots. Walgreens will have the option to proceed to a full combination by acquiring the remaining 55% of Alliance Boots in approximately three years’ time. At the current Walgreens share price and at a $1.55=£1 exchange rate, the second step of the transaction would be valued at approximately $9.5 billion in cash and stock, plus the assumption of Alliance Boots then-outstanding debt. Completion of the initial investment, which is subject to various regulatory approvals, is expected to take place by Sept. 1, 2012.

The boards of Walgreens and Alliance Boots unanimously approved the transaction. Upon the completion of Walgreens initial investment in Alliance Boots, Gregory Wasson, president and CEO of Walgreens; Wade Miquelon, executive vice president and CFO; Thomas Sabatino, executive vice president and general counsel; and Robert Zimmerman, senior vice president and chief strategy officer, will join the Alliance Boots board of directors. In addition, Stefano Pessina, executive chairman of Alliance Boots, and Dominic Murphy, director and member of KKR & Co. L.P., will join the Walgreens board Alliance Santé Participations S.A., of which Pessina is a director and whose ultimate ownership is a family trust, will hold a significant stake in Walgreens, which it intends to hold for the long term. KKR, through its funds, will also be an important shareholder of Walgreens.

Walgreens’ Wasson said of the transaction, “At Walgreens, our mission is to be America’s first choice for health and daily living—helping our customers to live well, stay well and get well. Today’s announcement represents an exciting opportunity to accelerate our five core strategies and advance that mission—in the U.S. and now internationally. We are bringing together the strengths and expertise of each company to create a worldwide health care platform for the future that can provide innovative ways to address global health and wellness challenges.

“We are looking forward to working with Alliance Boots to leverage our combined strengths and provide an even broader range of innovative, cost-effective products and services to patients and customers across the health care landscape. Together we will be ideally positioned to expand our customer offerings in our existing markets and become the health and well-being partner of choice in emerging markets.”

Alliance Boots’ Pessina commented, “This strategic transaction represents a further vital step in achieving our vision of becoming a global health care leader. We believe that it will bring clear benefits to all stakeholders, creating significant and sustainable industrial value through synergies and the deployment of our joint expertise. The fit is natural—Walgreens consumer profile in the U.S. is similar to Boots in the U.K. in many ways: a trusted and much-loved pharmacy brand with a strong heritage. Our pharmaceutical wholesale businesses will provide their logistics know-how to Walgreens and are well placed to be one of the growth engines of the new enterprise.

“Today’s announcement is testimony to the great track record and accomplishments of the Alliance Healthcare and Boots teams that have delivered strong growth since the creation of Alliance Boots six years ago and its subsequent privatization. I strongly believe that this transaction offers further significant growth opportunities and marks a very positive milestone for the health care industry as a whole.”

With the exercise of the option by Walgreens to proceed to a full combination, the new combined company would be a world leader in its field, with the combined scale, expertise and financial strength to grow rapidly in existing markets and fast-growing emerging markets across the globe, within existing business lines and in new segments. These growth opportunities are expected to be key drivers of long-term shareholder value.

The pharmacy-led retail and wholesale businesses of both companies will continue to operate under their well-known and trusted brand names. Upon completion of the second step of the transaction, the name of the new combined entity will reflect the strong heritage of both companies.

Given the complementary geographic footprints of Walgreens and Alliance Boots, there are no plans for job reductions at either company as a result of the transaction. Walgreens will maintain its existing headquarters in Deerfield, Illinois; and Alliance Boots remains committed to its current support offices across Europe, including in the UK, as well as keeping the Boots operational hub in Nottingham, England.