Walgreens to Complete Takeover of Alliance Boots

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Walgreens (NYSE:WAG), the largest chain of pharmacies in the U.S. is entering into the final phase of its long-planned takeover of Alliance Boots. Walgreens’ share price dropped by more than 13% in early trading today. As of 3:53 pm GMT, its shares are selling at 60.38. down 12.8% from yesterday’s close of 69.12. It would be unfair to attribute the entire decline exclusively to the news of the takeover.

Observations

My observations from here on the east coast of the U.S. are that the decline is based on two factors:

  • Institutional investors are reacting to the guidance issued by the company, lowering the projected 2016 EPS targets to between $4.25 and $4.60 from $5.00 as previously announced.
  • Idiots who are running around this morning saying that “Walgreens is moving to Switzerland!” You’re going to have to trust me on that, because, as far as I know, no one has published that. I have literally heard it on the street.

Facts

  • The earnings guidance adjustment is a result of the takeover, as the figures are now based on Walgreens completion of the acquisition and its impact on its business globally.
  • Someone wisely said that “A little knowledge is a dangerous thing.” People with just enough knowledge to be dangerous are idiots who cause panic with what little they know. It has been understood for quite some time that Walgreens was considering relocating to Europe for tax advantages (see recent stories about AbbVie & Shire), but the company had never committed to doing so.
  • Walgreens Boots Alliance, as the new company will be known, will be headquartered in Deerfield, Illinois, just outside Chicago, at the current Walgreens world headquarters. Boots will continue to be headquartered in Nottingham. Alliance Boots will remains headquartered in Bern.

The Acquisition

  • The acquisition process began in 2012 when Walgreens acquired 45% of Alliance Boots for £4.0 billion.
  • Walgreens will purchase the balance of the company by February 2015 using a combination of £3.0 billion in cash and almost as much in shares (equating to 144.3 million shares).
  • When the transaction is complete, the group will have more than 11,000 stores in 10 countries, all of them located “At the corner of happy and healthy,” the Walgreens slogan.
  • The new entity will immediately become the world’s leading pharmaceutical distribution network, serving in excess of 180,000 pharmacies, doctors’ offices and other healthcare facilities in over 20 countries.

With a subtle reference to the Walgreens slogan, CEO Greg Wasson declared that, “This is a pivotal moment in Walgreens history, as we venture ahead from the best corners in America to the four corners of the world.”

Alliance Boots Executive Chairman, Stefano Pessina, who will gain £1.5 billion from the sale, expressed similar thoughts from his perspective. “The new enterprise will represent the most significant milestone in the history of Alliance Boots.

Worthy of Note

In his business and organizational classic, From Good to Great, author Jim Collins described how he and his team of researchers set out to study 1,435 good companies to find 11 that have moved forward to greatness. Walgreens was one of the 11 distinguished “great” companies. Read the book and you will understand why.

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