|[August 06, 2014]
Walgreens Board of Directors Exercises Option to Complete Second Step of Strategic Partnership with Alliance Boots and Fully Combine Both Companies, Creating First Global Pharmacy-Led, Health and Wellbeing Enterprise
DEERFIELD, Ill. --(Business Wire)--
Walgreens (NYSE: WAG) (Nasdaq: WAG) today said it has exercised its
option to complete the second step of its strategic transaction with
Alliance Boots GmbH ahead of the original option period, which was
between February and August 2015. The transaction, subject to
shareholder and various regulatory approvals, would fully combine the
two companies to form the first global pharmacy-led, health and
This action follows the launch of the companies' long-term strategic
partnership in June 2012, when Walgreens acquired a 45 percent equity
ownership in Alliance Boots, with the option to proceed to a full
combination by acquiring the remaining 55 percent of Alliance Boots in
three years' time (Step 2). Walgreens expects to close the transaction
in the first quarter of calendar 2015.
Walgreens also announced the following decisions related to moving
forward with Step 2:
A new holding company to be formed in connection with the transaction
will be named Walgreens Boots Alliance, Inc., and will include four
divisions: Walgreen Co. (the largest drugstore chain in the United
States); Boots (the U.K. and Republic of Ireland's leading
pharmacy-led health and beauty retailer); Pharmaceutical Wholesale and
International Retail (including Alliance Healthcare, Europe's largest
pharmaceutical wholesaler); and Global Brands. In addition, the
combined company is establishing a cross-divisional global pharmacy
market access group.
Upon closing, the combined enterprise will blend senior management
from both companies including Walgreens President, CEO and board
member Greg Wasson who will be president and CEO of Walgreens Boots
Alliance, and Stefano Pessina, executive chairman of Alliance Boots,
who will be executive vice chairman of the combined company
responsible for strategy and M&A reporting to Wasson, and chairman of
a new strategy committee of the board of directors.
Jim Skinner will serve as the non-executive chairman of the board of
directors for the combined company.
The Walgreens Boots Alliance holding company will be headquartered in
the Chicago area, while Walgreens operations will remain headquartered
in Deerfield, Ill. Boots operations also will remain headquartered at
its current location in Nottingham, U.K.
The company is outlining a new three-year "Next Chapter" plan through
fiscal 2017 that sets strategic goals for the combined company. The
plan reflects significant value-creating opportunities for the
combined enterprise to drive long-term shareholder value.
In conjunction with its strategic plan, the company is establishing a
new adjusted earnings per share goal for fiscal 2016 of $4.25-$4.60.
The adjusted EPS goal includes accelerated cost reduction initiatives
that target $1 billion in savings by the end of fiscal 2017 to
establish an efficient global enterprise.
Walgreens board of directors also authorized a new capital allocation
policy that includes a $3 billion share repurchase program through the
end of fiscal 2016. In addition, the board declared a 7.1 percent
quarterly dividend increase to 33.75 cents per share.
Walgreens Boots Alliance combines two leading companies with iconic
brands, complementary geographic footprints, shared values and a
heritage of trusted health care services through pharmaceutical
wholesaling and community pharmacy care, dating back more than 100 years
each. Combining the companies will create a new global leader in
pharmacy-led health and wellbeing retail with more than 11,000* stores
in 10* countries and an unparalleled portfolio of retail and business
brands, as well as increasingly global health and beauty product brands.
The full combination also will establish the world's largest
pharmaceutical wholesale and distribution network with more than 370*
distribution centers delivering to more than 180,000* pharmacies,
doctors, health centers and hospitals in 20* countries. Walgreens Boots
Alliance will be the world's largest purchaser of prescription drugs and
many other health and wellbeing products. 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.
"We are excited to move forward with the next important step in becoming
a new kind of global health care leader," said Wasson. "Expanding
globally with Alliance Boots will make quality health care more
affordable and accessible to communities here in America and around the
world. In addition, Stefano and I are pleased with the comprehensive
plan we've announced today as part of Step 2. These elements will
provide additional shareholder value creation, both in the near and long
term. I congratulate our teams for getting us to this point and together
we have a bright future."
Pessina said, "The expected creation of the new enterprise will
represent the most significant milestone in the history of Alliance
Boots and, importantly, a very positive step for the health care
industry as a whole. Together with Walgreens, we have already made good
progress over the past two years and I strongly believe that the merger
will bring significant growth opportunities for both mature and emerging
markets. Today's announcement reflects the great track record and
accomplishments of our people to date and I am convinced that their
skills, expertise and commitment will continue to make a positive
contribution in the years to come. This combination is a true
partnership, further evidenced by the composition of the future
management team of Walgreens Boots Alliance."
Under the terms of the revised agreement announced today, the period
during which Walgreens is permitted to exercise its option to acquire
the remaining 55 percent of Alliance Boots that it does not currently
own, in exchange for £3,133 million in cash (equivalent to approximately
$5.29 billion at a current $1.69=£1 exchange rate) payable in British
pounds sterling, and approximately 144.3 million shares of common stock
of Walgreens, has been accelerated to begin on Aug. 5, 2014 and end on
Feb. 5, 2015. Pursuant to the agreement, Walgreens exercised the option
through an affiliate on Aug. 5.
Blended Management Team
Leading Walgreens Boots Alliance will be a top management team led by
Wasson and consisting of senior executives from both companies. In
addition to Wasson's and Pessina's roles, the following appointments are
Ornella Barra, chief executive, Wholesale and Brands of Alliance
Boots, will become executive vice president of Walgreens Boots
Alliance and president and chief executive of global wholesale and
Jeff Berkowitz, president of Walgreens Boots Alliance Development
GmbH, will serve as executive vice president of Walgreens Boots
Alliance and president of pharma and global market access, which will
include responsibility for specialty pharmacy.
Alex Gourlay, Walgreens president of customer experience and daily
living, will become executive vice president of Walgreens Boots
Alliance and president of Walgreens.
Tim McLevish, previously announced as Walgreens executive vice
president and chief financial officer, will serve in that role in a
global capacity for Walgreens Boots Alliance.
Ken Murphy, managing director, Health & Beauty International and
Brands of Alliance Boots, will serve as executive vice president of
Walgreens Boots Alliance and president of global brands.
Simon Roberts, managing director, Health & Beauty, UK and the Republic
of Ireland of Alliance Boots, will serve as executive vice president
of Walgreens Boots Alliance and president of Boots.
Tom Sabatino, Walgreens chief administrative officer and general
counsel, will serve as executive vice president and global chief legal
and administrative officer of Walgreens Boots Alliance.
Tim Theriault, chief information, innovation and improvement officer
at Walgreens, will assume the role of executive vice president and
global chief information officer of Walgreens Boots Alliance.
Kathleen Wilson-Thompson, Walgreens chief human resources officer,
will become executive vice president and global chief human resources
officer of Walgreens Boots Alliance.
Domicile of Walgreens Boots Alliance Enterprise
The fully combined Walgreens Boots Alliance global enterprise will be
domiciled in the United States and headquartered in the Chicago area.
Walgreens operations will remain headquartered in Deerfield, Ill., and
Boots operations will remain headquartered at its current location in
In connection with moving forward with the option exercise, and given
the potentially significant business, financial, legal and competitive
implications, Walgreens management and the board of directors thoroughly
evaluated the possibility of combining Walgreens and Alliance Boots
under a foreign parent company in an "inversion" transaction. The
original option transaction would not qualify for an inversion under the
current tax inversion rules. The company and board of directors,
including a special committee of independent directors, and with the
bnefit of leading advisors in the fields of tax policy and inversions,
undertook an extensive analysis to explore the feasibility of a
restructured inversion transaction that would provide the company with
the customary level of confidence needed to withstand IRS review and
scrutiny. As part of this process, the company considered a wide range
of issues, including the potential financial benefits (and their
sustainability) and the technical viability of a restructured inversion
transaction under current U.S. law. The company also was mindful of the
ongoing public reaction to a potential inversion and Walgreens unique
role as an iconic American consumer retail company with a major portion
of its revenues derived from government-funded reimbursement programs.
"In line with our fiduciary duty to the company and our 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 Wasson. "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.
The board did, however, believe accelerating the option to exercise Step
2 was in the best interest of our shareholders, and with this decision,
we are now moving forward on an accelerated basis to create the global
leader in pharmacy-led health and wellbeing."
Three-Year "Next Chapter" Plan and Financial Goals
With the full combination, Walgreens Boots Alliance will be positioned
for a new era of profitable growth and is aggressively pursuing future
opportunities to drive sustainable shareholder value over the long term.
To do so, the company is launching a new three-year "Next Chapter" plan
that will maximize the scope and scale of the new combined company.
Through the plan, core business performance will be accelerated by
A differentiated retail experience that transforms the retail model
for health and wellness and changes the way women shop for beauty
Integrated pharmacy and health care that advance the role of
pharmacists and provide access to innovative health care services
Global pharmaceutical services that reinvent the pharmaceutical value
chain and deliver a seamless specialty pharmacy model
With the plan, the combined company is establishing goals for fiscal
2016 including revenue of between $126 billion and $130 billion and
adjusted earnings per share of $4.25 to $4.60. In addition, the combined
company anticipates exceeding the previously established $1 billion
The company's continuing focus on improving core performance in the
near-term at both Walgreens and Alliance Boots also remains a critical
component of the "Next Chapter" plan. "As we launch our global plan, we
are more focused than ever on what it will take to compete and succeed
on the world stage," said Wasson. "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. 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."
Cost Reduction Initiative
As part of the combined company's goal to establish an efficient global
platform, the management team is accelerating a multi-faceted
cost-reduction initiative across the enterprise. The $1 billion,
three-year plan includes corporate, field and store-level cost
reductions. The company is making significant progress in an effort that
is already under way in order to begin realizing incremental benefits in
fiscal 2015. Additional details will be provided in coming quarters as
the company recognizes certain costs associated with these initiatives.
These cost savings are additive to the synergies discussed above.
"Walgreens has demonstrated a strong focus on cost control as adjusted
SG&A growth has slowed significantly from historical trends," said
Wasson. "We have made this impact by driving efficiencies across the
enterprise, and we are continuing to focus on that. Earlier this year,
we announced enterprise optimization initiatives to further accelerate
these efforts, which we've executed this fiscal year through strategic
closures of certain distribution centers and stores, exiting certain
businesses and driving cost reduction programs at our headquarters and
in the field. We also plan to expand these efforts as we leverage the
expertise of both companies and move forward integrating Walgreens and
Capital Allocation Policy
The board of directors has approved a new capital allocation policy for
the combined enterprise. The policy is designed to ensure a balanced and
disciplined approach to capital intended to drive business growth and
generate strong returns, while returning cash to shareholders through
dividends and share repurchases over the long term. The key elements of
the new capital allocation policy include:
Investing across core businesses at suitable returns to drive organic
Pursuing strategic opportunities, including mergers and acquisitions,
that are consistent with the company's strategy, meet its return
requirements, are accretive and drive long-term growth
Maintaining a strong balance sheet and financial flexibility with a
commitment to solid investment grade credit ratings to govern future
Returning cash to shareholders by targeting a 30-35 percent long-term
dividend payout ratio and a new $3 billion share repurchase
authorization through the end of fiscal 2016.
In addition, the board of directors of Walgreen Co. on Aug. 5, 2014
increased the quarterly dividend to 33.75 cents per share, a 7.1 percent
increase over the year-ago quarterly dividend of 31.5 cents per share.
The increased dividend is payable Sept. 12, 2014, to shareholders of
record Aug. 21, 2014, and raises the annual rate from $1.26 per share to
$1.35 per share. This marks the 39th consecutive year
Walgreens has raised its dividend.
"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," said
Wasson. "In a changing global marketplace with new opportunities and
challenges, we will serve our communities, our country and the world in
ways we could never have imagined even a few years ago."
Walgreens financial advisors in connection with the second step of the
Alliance Boots transaction are Goldman, Sachs & Co. and Lazard, and its
legal advisors are Wachtell, Lipton, Rosen & Katz, and Allen Overy.
Walgreens will hold a one-hour conference call to discuss the Alliance
Boots transaction and related matters beginning at 8 a.m. Eastern time
today, Aug. 6. The conference call will be simulcast through Walgreens
investor relations website at: http://investor.walgreens.com.
A replay of the conference call will be archived on the website for 12
months after the call. A podcast also will be available on the investor
The replay also will be available from 11:30 a.m. Eastern time, Aug. 6
through Aug. 13, by calling 855-859-2056 within the U.S. and Canada, or
404-537-3406 outside the U.S. and Canada, using replay code 82609242.
* Note: Figures include Alliance Boots associates and joint ventures
As the nation's largest drugstore chain with fiscal 2013 sales of $72
billion, Walgreens (www.walgreens.com)
vision is to be the first choice in health and daily living for everyone
in America, and beyond. Each day, in communities across America, more
than 8 million customers interact with Walgreens using the most
convenient, multichannel access to consumer goods and services and
trusted, cost-effective pharmacy, health and wellness services and
advice. Walgreens scope of pharmacy services includes retail, specialty,
infusion, medical facility and mail service, along with online and
mobile services. These services improve health outcomes and lower costs
for payers including employers, managed care organizations, health
systems, pharmacy benefit managers and the public sector. The company
operates 8,192 drugstores in all 50 states, the District of Columbia,
Puerto Rico and the U.S. Virgin Islands. Walgreens digital business
includes Walgreens.com, drugstore.com, Beauty.com, SkinStore.com and
VisionDirect.com. Take Care Health Systems is a Walgreens subsidiary
that manages more than 400 in-store convenient care clinics throughout
Cautionary Note Regarding Forward-Looking Statements. Statements
in this release that are not historical are forward-looking statements
for purposes of applicable securities laws. Words such as
"expect," "likely," "outlook," "forecast," "would," "could," "should,"
"can," "will," "project," "intend," "plan," "goal," "target,"
"continue," "sustain," "synergy," "on track," "believe," "seek,"
"estimate," "anticipate," "may," "possible," "assume," variations of
such words and similar expressions are intended to identify such
forward-looking statements. These forward-looking statements are not
guarantees of future performance and involve risks, assumptions and
uncertainties, including: the risks that one or more closing conditions
to the transactions may not be satisfied or waived, on a timely basis or
otherwise, including that a governmental entity may prohibit, delay or
refuse to grant approval for the consummation of the transactions or
that the required approvals by the Company's shareholders may not be
obtained; the risk of a material adverse change that the Company or
Alliance Boots or either of their respective businesses may suffer as a
result of disruption or uncertainty relating to the transactions; risks
associated with changes in economic and business conditions generally or
in the markets in which we or Alliance Boots participate; risks
associated with new business areas and activities; risks associated with
acquisitions, joint ventures, strategic investments and divestitures,
including those associated with cross-border transactions; risks
associated with governance and control matters; risks associated with
the Company's ability to timely arrange for and consummate financing for
the contemplated transactions on acceptable terms; risks relating to the
Company and Alliance Boots' ability to successfully integrate our
operations, systems and employees, realize anticipated synergies and
achieve anticipated financial results, tax and operating results in the
amounts and at the times anticipated; the potential impact of
announcement of the transactions or consummation of the transactions on
relationships and terms, including with employees, vendors, payers,
customers and competitors; the amounts and timing of costs and charges
associated with our optimization initiatives; our ability to realize
expected savings and benefits in the amounts and at the times
anticipated; changes in management's assumptions; the risks associated
with transitions in supply arrangements; risks that legal proceedings
may be initiated related to the transactions; the amount of costs, fees,
expenses and charges incurred by Walgreens and Alliance Boots related to
the transactions; the ability to retain key personnel; changes in
financial markets, interest rates and foreign currency exchange rates;
the risks associated with international business operations; the risk of
unexpected costs, liabilities or delays; changes in network
participation and reimbursement and other terms; risks associated with
the operation and growth of our customer loyalty program; risks
associated with outcomes of legal and regulatory matters, and changes in
legislation, regulations or interpretations thereof; and other factors
described in Item 1A (Risk Factors) of our most recent Form 10-K and
Form 10-Q, each of which is incorporated herein by reference, and in
other documents that we file or furnish with the SEC (News - Alert). Should one or more
of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from
those indicated or anticipated by such forward-looking statements.
Accordingly, you are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date they are
made. Except to the extent required by law, Walgreens does not
undertake, and expressly disclaims, any duty or obligation to update
publicly any forward-looking statement after the date of this release,
whether as a result of new information, future events, changes in
assumptions or otherwise.
Non-GAAP Financial Measures. This press release contains
certain non-GAAP financial measures, as defined under SEC rules, that
are not calculated or presented in accordance with generally accepted
accounting principles in the United States (GAAP). These non-GAAP
financial measures are presented supplementally because management
evaluates the company's financial results both including and excluding
the adjusted items and believes that the non-GAAP financial measures
presented provide additional perspective and insights when analyzing the
core operating performance of the Company's business from period to
period and trends in the company's historical operating results. The
company does not provide a non-GAAP reconciliation for non-GAAP
estimates on a forward-looking basis where it is unable to provide a
meaningful or accurate calculation or estimation of reconciling items
and the information is not available without unreasonable effort. The
supplemental non-GAAP financial measures presented should not be
considered superior to, as a substitute for or as an alternative to, and
should be considered in conjunction with, our financial measures
determined in accordance with GAAP.
Important Information for Investors and Shareholders
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of any
vote or approval, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any
such jurisdiction. No offer of securities shall be made except by means
of a prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended. In connection with the proposed transactions
between Walgreens and Alliance Boots, Walgreens Boots Alliance will file
with the Securities and Exchange Commission (SEC) a registration
statement on Form S-4 that will include a proxy statement of Walgreens
that also constitutes a prospectus of Walgreens Boots Alliance. After
the registration statement has been declared effective by the SEC, the
definitive proxy statement/prospectus will be delivered to shareholders
of Walgreens. INVESTORS AND SECURITY HOLDERS OF WALGREENS ARE URGED
TO READ THE DEFINITIVE PROXY STATEMENT/PROSPECTUS (INCLUDING ALL
AMENDMENTS AND SUPPLEMENTS THERETO) AND OTHER DOCUMENTS RELATING TO THE
TRANSACTIONS THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR
ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED TRANSACTIONS. Investors and security
holders will be able to obtain free copies of the registration statement
and the definitive proxy statement/prospectus (when available) and other
documents filed with the SEC by Walgreens or Walgreens Boots Alliance
through the website maintained by the SEC at www.sec.gov.
Copies of the documents filed with the SEC by Walgreens or Walgreens
Boots Alliance will be available free of charge on Walgreens' internet
website at www.walgreens.com under
the heading "Investor Relations" and then under the heading "SEC
Filings" or by contacting Walgreen's Investor Relations Department at
Participants in the Solicitation
Walgreens, Alliance Boots, Walgreens Boots Alliance and their respective
directors, executive officers and certain other members of management
and employees may be deemed to be participants in the solicitation of
proxies from the holders of Walgreens common stock in respect of the
proposed transactions. Information regarding the persons who are, under
the rules of the SEC, participants in the solicitation of proxies in
favor of the proposed transactions will be set forth in the proxy
statement/prospectus when it is filed with the SEC. You can find
information about Walgreens' directors and executive officers in
Walgreens' Annual Report on Form 10-K for the year ended August 31, 2013
and definitive proxy statement filed with the SEC on November 25, 2013.
You can obtain free copies of these documents, which are filed with the
SEC, from Walgreens using the contact information above.
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