Walgreen pays $6.7 billion for Alliance Boots stake

Tue Jun 19, 2012 1:05pm EDT
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By James Davey and Phil Wahba

LONDON/NEW YORK (Reuters) - U.S. drugstore chain Walgreen Co WAG.N is taking a 45 percent stake in European health and beauty group Alliance Boots Holdings Ltd ABN.UL for $6.7 billion in cash and stock, making a surprisingly big bet on Europe in the midst of the euro crisis.

The move will create the world's biggest buyer of prescription drugs and give both companies reach into new markets. But Walgreen shares were down 6 percent as some investors were concerned by the decision to expand in Europe.

The deal, the result of talks that began 18 months ago, marks Walgreen's first move beyond its home market and will give it more clout with drugmakers at a time it is losing sales because it no longer fills prescriptions for members of a major pharmacy benefits manager, Express Scripts Holding Co (ESRX.O: Quote).

Analysts were surprised by the nature and scope of the deal given that Walgreen had never made international expansion a priority.

"You're betting the entire company, " said Jeff Jonas, analyst at Gabelli & Co. "I think if their old strategy had been working well, they'd be in the Express Scripts network and using most of their cash to buy back stock."

Standard & Poor's warned that the $3.5 billion in debt Walgreen will take on for the deal "will result in a meaningful deterioration of Walgreen's financial risk profile."

Walgreen will pay $4 billion in cash and 83.4 million of its shares for the stake. The retailer also raised its dividend by 22.2 percent on Tuesday and reported quarterly earnings.

Walgreen stands to benefit from Boots' growing presence in emerging markets including China. It also plans to sell popular Boots brands like No. 7 and Soltan, giving Boots the entree into the U.S. market it has sought for 10 years.   Continued...

A sign for a Walgreens store is seen in Belle Glade, Florida January 6, 2010. REUTERS/Carlos Barria