The largest drugstore chain in the US has agreed to buy a 45% stake in Alliance Boots, Europe’s largest health-and-beauty retailer. In its biggest deal ever, century-old Walgreen will pay about $6.7 billion in cash and stock for a 45% equity interest in Boots, with the option of acquiring the remaining 55% by 2015.
The move will create the world’s biggest pharmacy-led, health-and-beauty retailer with more than 11,000 stores in a dozen countries and a wholesale pharmaceutical business with operations in 21 countries. Indeed, the combined company will be the world’s biggest buyer of prescription drugs. The partnership will extend Walgreen’s reach beyond the US, where it has just about saturated the retail landscape with nearly 7,900 drugstore in all 50 states, and give Boots a coveted foothold in the US market. The deal will also help compensate Walgreen for sales lost as a result of its recent breakup with Express Scripts. (The loss of revenue from Express Scripts customers contributed to an 11% decline in Walgreen’s third quarter profit, the company reported yesterday in a separate earnings release.)
While the share price of Alliance Boots rose on the news, Walgreen shares fell 6% as skittish investors questioned the wisdom of increasing exposure to Europe in the midst of the euro zone crisis. Beyond Europe, Walgreen is seeking new markets in Asia and Latin America through its investment. Commenting on the tie up between the two companies Walgreen CEO said, “Together we will be ideally positioned to expand our customer offerings in our existing markets and become the health and wellbeing partner of choice in emerging markets.”
The deal is a coup for the executive chairman of Alliance Boots, Italian billionaire Stefano Pessina, who along with the private equity firm Kohlberg Kravis Roberts acquired the company in 2007 for about $22 billion. Pessina, who has global aspirations for Boots, will reinvest his proceeds from the sale to buy an 8% stake in Walgreen. He also gets a seat on its board.
The deal is expected to close by September 1.