By Joann S. Lublin and Paul Ziobro
A small shareholder has launched a fight against a Walgreen Co.
takeover backed by the company and activist investor Jana Partners
LLC.
CtW Investment Group, an arm of labor federation Change to Win,
wants stockholders of the biggest U.S. pharmacy chain to vote
against Walgreen's roughly $14.7 billion plan to buy the 55% of
European drugstore chain Alliance Boots GmbH it doesn't already
own.
The group--which represents union pension funds that own about
2.5 million shares of Walgreen, or about 0.3% of the
company--argued in a letter sent Wednesday to nearly all other
shareholders that the acquisition is overpriced and unnecessary.
Shareholders are to vote on the deal at a Dec. 29 special
meeting.
CtW's letter also criticized Jana founder and managing partner
Barry Rosenstein, who sits on Walgreen's board. "Mr. Rosenstein
himself does not appear to bring either corporate integration,
retail or international operating experience to the board," the
letter said.
Jana declined to comment about the CtW letter.
Walgreen spokesman Michael Polzin said CtW has been opposed to
the deal with Alliance Boots for some time, and that based on
feedback from investors, the group "appears to be a significant
outlier."
"Investors have consistently expressed support for the
transaction and many have encouraged us to close this transaction
as soon as possible," Mr. Polzin said.
In announcing the deal in August, Walgreen said buying the rest
of Alliance Boots would create a global pharmacy operator better
able to address rising drug costs.
CtW's objection highlights how the wave of mergers and
activist-inspired strategic moves can sometimes leave smaller
shareholders behind. Analysts generally favor the Alliance Boots
deal, though some have said the outlook for the combined business
isn't as good as it once was amid a slowdown in Europe and problems
at Walgreen managing rising drug prices.
Alliance Boots operates about 4,500 pharmacies in more than two
dozen countries. In 2012, Walgreen paid $6.7 billion in cash and
stock for 45% of the European company in a move aimed at giving the
company greater heft in negotiating with suppliers and a broader
global presence. The company intended to buy the rest of Alliance
Boots eventually, but sped up the timetable amid pressure from
shareholders like Jana.
CtW argued in its letter that the existing partnership gives
Walgreen the benefits of greater buying power without the cost of
the full acquisition.
Jana holds a 1.4% stake in Walgreen and gained its board seat
plus a promised second one in September. The activist fund supports
the acquisition of the rest of Alliance Boots and had lobbied for
Walgreen to relocate overseas as part of the process to save on
taxes, people familiar with the matter have said, but the company
decided not to amid a broader political backlash against such
maneuvers.
Jana also supported Walgreen's decision in August to begin a $3
billion share buyback--a move that CtW considers unwise at a time
that the company is already spending heavily on the acquisition.
CtW will make the stock buyback "a central piece" of its campaign
against the takeover vote, said Michael Pryce-Jones, its senior
governance policy analyst.
David Benoit contributed to this article.
Write to Joann S. Lublin at joann.lublin@wsj.com and Paul Ziobro
at Paul.Ziobro@wsj.com
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