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08/06/2014

Walgreens acquires remainder of Alliance Boots; will keep HQ in the Chicago area

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DEERFIELD, Ill. — Walgreens on Wednesday said it has exercised its option to complete the second step of its strategic transaction with Alliance Boots ahead of the original option period, which was between February and August 2015. The transaction, subject to shareholder and various regulatory approvals, would fully combine the two companies to form the first global pharmacy-led, health and well-being enterprise.


 


This action follows the launch of the companies’ long-term strategic partnership in June 2012, when Walgreens acquired a 45% equity ownership in Alliance Boots, with the option to proceed to a full combination by acquiring the remaining 55% of Alliance Boots in three years’ time (Step 2). Walgreens expects to close the transaction in the first quarter of calendar 2015.


 


Walgreens also announced the following decisions related to moving forward with Step 2:


 



  • A new holding company to be formed in connection with the transaction will be named Walgreens Boots Alliance, and will include four divisions: Walgreen Co. (the largest drug store 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 is establishing a cross-divisional global pharmacy market access group;


  • 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 M&A 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;


  • The Walgreens Boots Alliance holding company will be headquartered in the Chicago area, while Walgreens operations will remain headquartered in Deerfield, Ill. Boots operations also will remain headquartered at its current location in Nottingham, U.K.;


  • 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 to $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; and


  • Walgreens board of directors 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 declared a 7.1% quarterly dividend increase to 33.75 cents per share.



 


Walgreens Boots Alliance combines two leading companies with iconic brands, complementary geographic footprints, shared values and a heritage of trusted healthcare services through pharmaceutical wholesaling and community pharmacy care, dating back more than 100 years each. Combining the companies will create a pharmacy-led health and well-being retailer with more than 11,000 stores in 10 countries and a portfolio of retail and business brands, as well as increasingly global health and beauty product brands. 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, according to Walgreens. Walgreens Boots Alliance also will be the world’s largest purchaser of prescription drugs and many other health and well-being products.


 


“We are excited to move forward with the next important step in becoming a new kind of global healthcare leader,” Wasson said. “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. I congratulate our teams for getting us to this point and together we have a bright future.”


 


“The expected creation of the new enterprise will represent the most significant milestone in the history of Alliance Boots and, importantly, a very positive step for the healthcare industry as a whole," Pessina said. "Together with Walgreens, we have already made good progress over the past two years, and I strongly believe that the merger will bring significant growth opportunities for both mature and emerging markets. Today’s announcement reflects the great track record and accomplishments of our people to date, and I am convinced that their skills, expertise and commitment will continue to make a positive contribution in the years to come. This combination is a true partnership, further evidenced by the composition of the future management team of Walgreens Boots Alliance.”


 


Under the terms of the revised agreement, the period during which Walgreens is permitted to exercise its option to acquire the remaining 55% of Alliance Boots that it does not currently own, in exchange for £3,133 million in cash (equivalent to approximately $5.29 billion at a current $1.69=£1 exchange rate) 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. 5.


 


Leading Walgreens Boots Alliance will be a top management team led by Wasson and consisting of senior executives from both companies. In addition to Wasson’s and Pessina’s roles, the following appointments are being announced:


 



  • Ornella Barra, chief executive wholesale and brands of Alliance Boots, will become EVP of Walgreens Boots Alliance and president and chief executive of global wholesale and international retail;


  • Jeff Berkowitz, president of Walgreens Boots Alliance Development, will serve as EVP of Walgreens Boots Alliance and president of pharma and global market access, which will include responsibility for specialty pharmacy;


  • Alex Gourlay, Walgreens president of customer experience and daily living, will become EVP Walgreens Boots Alliance and president of Walgreens;


  • Tim McLevish, previously announced as Walgreens EVP and CFO, will serve in that role in a global capacity for Walgreens Boots Alliance;


  • Ken Murphy, managing director of Health & Beauty International and Brands of Alliance Boots, will serve as EVP of Walgreens Boots Alliance and president of global brands;


  • Simon Roberts, managing director of Health & Beauty, UK and the Republic of Ireland of Alliance Boots, will serve as EVP Walgreens Boots
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