VALLEY FORGE, PA — AmerisourceBergen Corporation (NYSE: ABC) and Walgreens Boots Alliance, Inc. (Nasdaq: WBA) recently announced strategic agreements under which AmerisourceBergen will acquire the majority of Walgreens Boots Alliance’s Alliance Healthcare businesses for approximately $6.5 billion, comprised of $6.275 billion in cash and 2 million shares of AmerisourceBergen common stock.
AmerisourceBergen’s acquisition of Alliance Healthcare will provide even stronger support for pharmacies and pharmacists across the globe and integrated solutions for pharmaceutical manufacturers. Walgreens Boots Alliance will be able to increase its focus on expanding its core retail pharmacy businesses, bringing even greater healthcare offerings to patients and customers and further accelerating its progress on its clear set of strategic priorities.
In addition to this transaction, the two companies have agreed to strengthen their strategic partnership by extending and expanding their commercial agreements. Their U.S. distribution agreement will be extended by three years until 2029 and their partnership is being expanded to include a commitment to pursue additional opportunities in sourcing and distribution. Furthermore, Alliance Healthcare UK will remain the distribution partner of Boots until 2031. Together, these agreements are expected to create incremental growth, synergies and efficiencies.
“This strategic agreement with AmerisourceBergen, which we consider to be the world’s leading pharmaceutical wholesaler, is a very positive development for the two companies. This deal will enable significant value creation for both companies and will generate new synergies in addition to those already captured. It is a logical step following the success of our long-term strategic relationship with AmerisourceBergen which has been a strong and trusted partner since 2013,” said Stefano Pessina, Executive Vice Chairman and CEO, Walgreens Boots Alliance. “The transaction will fuel higher future investments to grow and transform our core retail pharmacy and healthcare businesses, and is EPS accretive long-term for Walgreens Boots Alliance.”
“AmerisourceBergen’s vital role in the health system as a key pillar of pharmaceutical innovation and access has been on full display over the past year,” said Steven Collis, Chairman, President & Chief Executive Officer of AmerisourceBergen. “AmerisourceBergen’s financial and strategic position enable this next evolution of enhancing our ability to provide healthcare capabilities across regions and deliver innovative solutions for our upstream and downstream partners. Today’s announcements will expand our reach and solutions in pharmaceutical distribution and add to AmerisourceBergen’s breadth and depth of global manufacturer services, supporting our ability to create differentiated value for all our stakeholders. I look forward to extending and expanding our successful partnership with Walgreens Boots Alliance and welcoming the industry-leading team at Alliance Healthcare to AmerisourceBergen. Together, we will fulfill AmerisourceBergen’s purpose of being united in our responsibility to create healthier futures.”
These announcements between the two global enterprises continue to build on the close partnership and strong foundation that began in 2013. Walgreens Boots Alliance is the largest shareholder of AmerisourceBergen with a stake of nearly 30 percent, and Ornella Barra, Co-Chief Operating Officer, Walgreens Boots Alliance, is a Board Member of AmerisourceBergen.
Strategic and Financial Summary
The Alliance Healthcare transaction and expanded strategic agreement are expected to:
- Extend AmerisourceBergen’s distribution presence with the addition of an established European leader and AmerisourceBergen’s global platform of higher-margin manufacturer services to support pharmaceutical innovation. As one of the largest pharmaceutical wholesalers in Europe, Alliance Healthcare will extend AmerisourceBergen’s core wholesale, distribution, and related solutions capabilities. The addition of Alliance Healthcare will enhance AmerisourceBergen’s existing global platform of manufacturer services and further its ability to support global access. Alliance Healthcare partners with healthcare companies and professionals to deliver a range of logistics and supply chain services and innovative solutions to help improve patient care. Global reach and specialty logistics capabilities are vital with rapidly accelerating pharmaceutical innovation, particularly for specialty medicines and with the advancement of cell and gene therapies.
- Allow Walgreens Boots Alliance to increase its focus on growing and transforming its core retail pharmacy and healthcare businesses, facilitate higher growth investments and accelerate its strategic goals.
- Extend and Expand Strategic Partnership in the United States. In addition to the transaction announced today, Walgreens Boots Alliance and AmerisourceBergen have extended their U.S. strategic partnership through 2029. The extended agreement will create incremental growth and efficiencies in sourcing, logistics and distribution. These initiatives support Walgreens pharmacy operations and enhance AmerisourceBergen’s ability to create differentiated value for all its customers. Walgreens Boots Alliance and AmerisourceBergen expect the financial benefits of the expansion of their U.S. strategic partnership to ramp over the next three years to achieve annual run-rate synergies in the fourth year of at least $150 million, which will be shared equally between the two companies.
- Enhance AmerisourceBergen’s scale and margin profile. Alliance Healthcare will strengthen AmerisourceBergen’s platform to deliver continued growth across pharmaceutical distribution and manufacturer services.
Under the terms of the purchase agreement, which has been approved by the AmerisourceBergen and Walgreens Boots Alliance Boards of Directors, AmerisourceBergen will pay WBA $6.275 billion in cash, subject to a customary working capital and net-debt adjustment, and deliver 2 million shares of AmerisourceBergen common stock at closing of the transaction. AmerisourceBergen expects to fund the cash purchase price through a combination of cash on hand and new debt financing.
The transaction, which is expected to close by AmerisourceBergen’s fiscal year-end 2021, is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals. Walgreens Boots Alliance’s operations in China, Italy and Germany are not part of this transaction.
Upon closing, the acquisition of Alliance Healthcare is expected to deliver high-teens percentage accretion to AmerisourceBergen’s adjusted diluted EPS in the first fiscal year. AmerisourceBergen expects synergies from the acquisition of Alliance Healthcare to ramp to an annual run-rate of $75 million in the fourth year. Adjusted free cash flow of the combined AmerisourceBergen and Alliance Healthcare businesses are expected to increase to 125% of AmerisourceBergen’s stand-alone estimates. Please refer to the Supplemental Information Regarding Non-GAAP Financial Measures below for additional information. AmerisourceBergen expects to maintain its strong investment grade credit rating, and the positive contribution to cash generation will support debt reduction in the years following transaction close. This acquisition is expected to have no impact on AmerisourceBergen’s dividend policy.
Effective from Walgreens Boots Alliance second quarter FY2021 earnings, the businesses sold will be classified as “businesses held for sale” with FY2020 revenues of approximately $19 billion, and adjusted EBITDA of approximately $540 million. Walgreens Boots Alliance expects FY2021 adjusted EBITDA to be in the range of $575 million to $580 million for these Alliance Healthcare businesses. The transaction will be slightly dilutive in the current financial year for Walgreens Boots Alliance, but will be accretive longer-term.
J.P. Morgan Securities LLC is serving as exclusive financial advisor and Cravath, Swaine & Moore LLP, Hogan Lovells International LLP and Morgan, Lewis & Bockius LLP are serving as legal advisors to AmerisourceBergen. Fully committed financing for the transaction has been provided by JPMorgan Chase Bank, N.A. Centerview Partners is serving as financial advisor and Cleary Gottlieb Steen & Hamilton LLP and Baker McKenzie LLP are serving as legal advisors to Walgreens Boots Alliance.
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