Walgreens announced today that it has exercised its option to buy the remaining 55 percent of Alliance Boots that it did not already control and the combined company will base its headquarters somewhere in the Chicago area. The parties expect the deal to close in the first quarter of 2015.
A new holding company, Walgreens Boots Alliance, will be formed to manage the enterprise that will include four divisions:
Walgreens president and CEO Greg Wasson will become president and CEO of Walgreens Boots Alliance. Stefano Pessina, executive chairman of Alliance Boots, will become executive vice chairman of the new company responsible for strategy and M&A activity. He will also become chairman of a new strategy committee for the Walgreens Boots Alliance board. Jim Skinner, retired CEO of McDonald's, will serve as the company's non-executive chair.
The Walgreens and Boots deal creates a drugstore giant operating more than 11,000 stores in 10 countries. It also becomes the largest pharmaceutical wholesaler and distribution network with more than 370 distribution centers making deliveries in 20 countries. According to a press release to announce the deal, "The combined size, scale and expertise will help Walgreens and Alliance Boots expand the supply, and address the rising cost, of prescription drugs in America and worldwide."
Prior to the deal being announced, there was a great deal of speculation on whether Walgreens would move its headquarters outside of the U.S. to reduce its tax liability. In the end, the company decided a so-called inversion transaction was not in the best interest of shareholders.
"We undertook an extensive and rigorous analysis with a team of leading experts to determine the most optimal — and sustainable — course of action," said Mr. Wasson in a statement. "We took into account all factors, including that we could not arrive at a structure that provided the company and our board with the requisite level of confidence that a transaction of this significance would need to withstand extensive IRS review and scrutiny. As a result the company concluded it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the U.S."
Moving ahead, Walgreens Boots Alliance has established a three-year "Next Chapter" plan to take advantage of the scale of the new company. This includes:
"We are uniquely positioned to be a leader and a champion for accessible, affordable health care, and that means continuing to innovate, to find new ways to be as efficient as possible, and more agile and nimble as we compete in the worldwide market," said Mr. Wasson. "We also are encouraged by the improving performance of our daily living business and the further potential of our expanded beauty and own brands portfolio to drive margin expansion."
How likely is it that Walgreens Boots Alliance will be able to successfully address the rising cost of prescription drugs?