WASHINGTON - Walgreens, the largest drug retailing chain in the United State with 8,678 stores, Wednesday announced plans to exercise its option and acquire the remaining 55 percent stake in Alliance Boots GmbH, Britain's biggest pharmacy chain, ahead of the original option period, in a $5.29 billion deal.
In June 2012, Walgreens had acquired a 45 percent equity ownership in Alliance Boots, with the option to take over the company by acquiring the remaining 55 percent of Alliance Boots in three years' time.
Under the terms of the revised agreement announced Wednesday, the period during which Walgreens is permitted to exercise its option to acquire the remaining 55 percent of Alliance Boots that it does not currently own, in exchange for 3.13 billion pounds in cash (equivalent to approximately $5.29 billion) payable in British pounds sterling, and approximately 144.3 million shares of common stock of Walgreens, has been accelerated to begin on Aug. 5, 2014 and end on Feb. 5, 2015.
Pursuant to the agreement, Walgreens exercised the option through an affiliate on Aug. 6.
Walgreens expects to close the transaction in the first quarter of calendar 2015.
However giving in to intense political pressure, Walgreen announced that the alliance holding company to be known as Walgreens Boots Alliance will be headquartered in the Chicago area, while Walgreens operations will remain headquartered in Deerfield, Ill and Boots operations also will remain headquartered at its current location in Nottingham, U.K.
Upon closing, the combined enterprise will blend senior management from both companies including Walgreens President, CEO and board member Greg Wasson who will be president and CEO of Walgreens Boots Alliance, and Stefano Pessina, executive chairman of Alliance Boots, who will be executive vice chairman of the combined company responsible for strategy and MA reporting to Wasson, and chairman of a new strategy committee of the board of directors.
Jim Skinner will serve as the non-executive chairman of the board of directors for the combined company.
Walgreens admitted that its management and the board of directors had thoroughly evaluated the possibility of combining Walgreens and Alliance Boots under a foreign parent company in an "inversion" transaction.
However, given the ongoing public reaction to a potential inversion and Walgreens unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs, it was decided against moving out the headquarters from the US.
"In line with our fiduciary duty to the company and our shareholders, we undertook an extensive and rigorous analysis with a team of leading experts to determine the most optimal and sustainable course of action," said Wasson.
"We took into account all factors, including that we could not arrive at a structure that provided the company and our board with the requisite level of confidence that a transaction of this significance would need to withstand extensive IRS review and scrutiny. As a result the company concluded it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the U.S."
The transaction, subject to shareholder and various regulatory approvals, would fully combine the two companies to form the first global pharmacy-led, health and wellbeing enterprise.
"Walgreens Boots Alliance combines 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 each," the American company stated.
Combining the companies will create a new global leader in pharmacy-led health and wellbeing retail with more than 11,000 stores in 10 countries and an unparalleled portfolio of retail and business brands, as well as increasingly global health and beauty product brands.
As part of the deal, a new holding company Walgreens Boots Alliance, Inc.will be set up with four divisions: Walgreen Co. (the largest drugstore chain in the United States); Boots (the U.K. and Republic of Ireland's leading pharmacy-led health and beauty retailer); Pharmaceutical Wholesale and International Retail (including Alliance Healthcare, Europe's largest pharmaceutical wholesaler); and Global Brands. In addition, the combined company will be establishing a cross-divisional global pharmacy market access group.
The company is outlining a new three-year "Next Chapter" plan through fiscal 2017 that sets strategic goals for the combined company. The plan reflects significant value-creating opportunities for the combined enterprise to drive long-term shareholder value.
In conjunction with its strategic plan, the company is establishing a new adjusted earnings per share goal for fiscal 2016 of $4.25-$4.60.
The adjusted EPS goal includes accelerated cost reduction initiatives that target $1 billion in savings by the end of fiscal 2017 to establish an efficient global enterprise.
Walgreens board of directors has also authorized a new capital allocation policy that includes a $3 billion share repurchase program through the end of fiscal 2016. In addition, the board has declared a 7.1 percent quarterly dividend increase to 33.75 cents per share.
The full combination also will establish the world's largest pharmaceutical wholesale and distribution network with more than 370 distribution centers delivering to more than 180,000 pharmacies, doctors, health centers and hospitals in 20 countries.
Walgreens Boots Alliance will be the world's largest purchaser of prescription drugs and many other health and wellbeing products.
The combined size, scale and expertise will help Walgreens and Alliance Boots expand the supply, and address the rising cost, of prescription drugs in America and worldwide.
"We are excited to move forward with the next important step in becoming a new kind of global health care leader," said Wasson.
"Expanding globally with Alliance Boots will make quality health care more affordable and accessible to communities here in America and around the world. In addition, Stefano and I are pleased with the comprehensive plan we've announced today as part of Step 2. These elements will provide additional shareholder value creation, both in the near and long term."