By Maria Armental
Institutional Shareholder Services Inc. on Friday backed
Walgreen Co.'s proposed $14.7 billion takeover of U.K. drugstore
chain Alliance Boots, citing the combined company's savings
potential and greater ability to control rising prices of generic
prescription drugs.
The pharmacy chain--which currently owns 45% of Alliance Boots--
shocked investors in August when it slashed its long-term profit
projection saying it had failed to account for a spike in the price
of some generics that it sold under annual contracts with
Medicare.
Last year, Walgreen and Alliance Boots--the largest retail
pharmacies in the U.S. and Europe, respectively-- reached a 10-year
distribution deal with wholesaler AmerisourceBergen Corp. to
negotiate better prices with pharmaceutical companies.
A combined company, the proxy adviser said, would have greater
leverage at negotiations.
By merging operations, the companies estimate they will save
about $191 million next year with savings growing incrementally on
an annual basis. In 2018, the companies estimated they would save
about $1.12 billion, or more than 1% of the combined company pro
forma operating expenses for the year ended Aug. 31, 2014, the
proxy adviser said.
CtW Investment Group, an arm of labor federation Change to Wing,
has urged shareholders to reject the proposal, calling the deal
overpriced and unnecessary.
The group represents union pension funds that own about 2.5
million shares, or 0.3%, of Walgreen.
Shareholders are scheduled to vote on the deal at a Dec. 29
special meeting.
Alliance Boots operates more than 4,600 drugstores in more than
two-dozen countries. Walgreen bought its 45% stake in the company
in 2012 in a $6.7 billion cash-and-stock deal.
Walgreen operates more than 8,200 drugstores in the U.S., Puerto
Rico and the U.S. Virgin Islands.
Walgreen shares, largely flat in recent after-hours trading,
closed at $74.50 on Friday, up 30% for the year.
Write to Maria Armental at maria.armental@wsj.com
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