US pharmacy giant Walgreens is investing $6.70 billion in cash and stock to buy nearly half of the European major Alliance Boots in a deal the firms say will "create the first global pharmacy-led, health and wellbeing enterprise".
Walgreens is forking out $4.0 billion in cash and 83.4 million shares in exchange for a 45% stake in Alliance Boots. It will have the option to acquire the remaining holding in three years’ time.
The new entity will have over 11,000 stores in 12 countries and enjoy "the largest global pharmaceutical wholesale and distribution network", with 370 distribution centres delivering to more than 170,000 pharmacies, doctors, healthcentres and hospitals in 21 countries. It will also be the world’s largest purchaser of prescription drugs and claims to have "unmatched supply chain and procurement expertise [and] a unique platform for growth in developed and emerging markets".
Stefano Pessina, executive chairman at Alliance Boots, said "the fit is natural", as "Walgreens' consumer profile in the USA is similar to Boots in the UK in many ways - a trusted and much-loved pharmacy brand with a strong heritage". He added that "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".
Commenting on the deal, Ana Nicholls, healthcare analyst at the Economist Intelligence Unit said that “what is particularly interesting to me is the continuing consolidation of the global pharmacy sector, at a time when both the US and Europe are trying to reduce healthcare costs partly by driving down drug prices and partly by increasing co-payments or by moving drugs to the over-the-counter sector". She noted that "means margins are increasingly tight but there is still money to be made on volumes".
Ms Nicholls argues that creating the world's biggest pharmacy wholesaler "gives them obvious cost advantages and clout in negotiations with healthcare payers, as well as in consumer markets". The demise of Germany's drugstore chain Schlecker, which had about 10,000 stores across Europe and closed down earlier this month, "also offers a chance to hoover up market share, both in the pharmacy sector and in consumer health and beauty,” she concludes.