By Michael Siconolfi, Dana Mattioli and Joseph Walker
Walgreens Boots Alliance Inc. has made a takeover approach to
drug distributor AmerisourceBergen Corp., a move that could help
boost profitability at the drugstore giant and insulate it against
external threats in an increasingly competitive health-care
landscape.
Representatives of Walgreens Chief Executive Stefano Pessina
reached out several weeks ago to representatives of Amerisource CEO
Steven Collis, according to people familiar with the matter. They
discussed the possibility of Walgreens buying the portion of
Amerisource it doesn't already own, though there isn't an offer on
the table, the people said.
The companies are in early-stage talks to combine, the people
said, cautioning that no deal is imminent and there may well not be
one.
Michael Polzin, a Walgreens spokesman, said the company had no
comment, as did an Amerisource spokeswoman.
Should there be a transaction, it would be substantial:
AmerisourceBergen had a market value of $19.6 billion as of
Monday's market close. Walgreens had a market value of $67.8
billion.
Easing the burden of a takeover on Walgreens, the Deerfield,
Ill., company already owns about 26% of Amerisource. It also has a
representative on Amerisource's board.
Based in Valley Forge, Penn., Amerisource is one of the largest
drug distributors in the U.S., turning a profit of $364.5 million
on $153.1 billion in revenue in its fiscal year ended Sept. 30. In
addition to supplying retail pharmacies, Amerisource has a large
specialty-drug business that distributes expensive medicines for
cancer and other diseases directly to physicians and oncology
clinics.
Amerisource's Lash Group operates patient-services hubs for
pharmaceutical companies. The hubs help patients navigate
reimbursement hurdles with insurers and direct them toward how to
get copay coupons or other financial assistance to offset their
out-of-pocket costs.
Walgreens is the world's largest drugstore chain by number of
stores, with more than 13,000 in 11 countries. It is one of the
world's largest purchasers of prescription drugs, according to its
website. Its brands include Walgreens, Duane Reade, Boots and
beauty brands such as No7 and Soap & Glory.
The vast majority of its revenue comes from retail pharmacies in
the U.S. and abroad. But about 18% of the company's sales last year
came from its pharmaceutical-wholesale business, which distributes
drugs and other health-care products to pharmacies, doctors and
hospitals in 11 countries, primarily in Europe.
Walgreens is Amerisource's largest customer, representing 30% of
its revenue last year. In 2013, the companies entered into a
10-year agreement for Amerisource to be the primary distributor of
pharmaceuticals to Walgreens's retail, mail-order and specialty
pharmacies, and for Amerisource to buy generic drugs through a
group purchasing organization run by Walgreens. The companies have
since extended the agreement until 2026.
For Walgreens, buying Amerisource would be an example of
so-called vertical integration, in which a company acquires a link
in its supply chain, enabling it to keep more of the margin in the
products it sells -- in this case drugs.
If a deal is inked, it would come at a time when drugstore
owners are looking for ways to insulate their businesses from
external threats. In December, Walgreens rival CVS Health Corp.
signed a $69 billion deal to buy health insurer Aetna Inc. Moves by
e-commerce giant Amazon.com Inc. toward potentially entering the
pharmacy business helped motivate CVS to strike a deal, people
familiar with the matter have said. Indeed, it isn't the only
company in health care or other industries to seek mergers to help
fend off competitive threats from technology giants.
The consumer shift to online shopping is eating into the sales
of the retail side of the drugstore business. In addition to
filling prescriptions and selling over-the-counter medicines,
drugstore chains sell items as disparate as cotton swabs and
cosmetics that can now easily be bought online through Amazon and
other e-commerce players.
A deal between Walgreens and Amerisource would add to an empire
assembled by Mr. Pessina. He is a serial deal-maker who transformed
a small family-owned drug-distribution business into Alliance
Boots, a European drug retailing and wholesaling powerhouse.
In 2012, Walgreens paid $6.7 billion to buy nearly half of
Alliance Boots. In 2014, it acquired the part of Alliance Boots it
didn't already own. Mr. Pessina, who was executive chairman of
Alliance Boots, became CEO of the combined company. Mr. Pessina
then struck a deal to buy rival drugstore chain Rite Aid Corp. for
$9.4 billion in 2015. Regulators challenged the deal and it was
recut so that Walgreens would buy fewer Rite Aid stores.
Walgreens owned about 56.9 million Amerisource shares, or about
26% of the company, as of Nov. 30, 2017, according to Walgreens's
last quarterly securities filing. As part of a pact with
Amerisource, Walgreens can buy up to an additional 8.4 million
shares in the open market, according to the filing.
Write to Michael Siconolfi at michael.siconolfi@wsj.com, Dana
Mattioli at dana.mattioli@wsj.com and Joseph Walker at
joseph.walker@wsj.com
(END) Dow Jones Newswires
February 12, 2018 20:05 ET (01:05 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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