Alliance Boots—a European health and beauty retailer in which Walgreen owns a 45% stake—was formed in 2006 by the merger of Boots, a British drugstore chain with 3,300 locations in 25 countries, and European wholesale pharmacist Alliance UniChem, now owned by Alliance Boots Executive Chairman Stefano Pessina and New York-based private equity firm Kohlberg Kravis Roberts & Co.
That union created the scale that allowed Alliance Boots to expand into many emerging markets, from China and Thailand to Turkey and Nigeria, Pessina said last June.
Walgreen paid $6.7 billion last summer for 45% stake in Alliance Boots, with an option to take over the entire company.
Now Walgreen is following suit with its own wholesaler relationship, though Polzin emphasized that the possibility of an ownership stake in Chesterbrook, Pa.-based AmerisourceBergen is merely an “aligning of interests” and does not point to a full acquisition in the future. The relationship will help Walgreen expand into emerging markets, he said.
At Walgreen's annual meeting in January, Wasson said the company is looking at markets including India, China and Latin America.
The move into wholesaling—as well as the international interest—marks a major shift for the Deerfield, Ill.-based drugstore giant, which began with a single store on Chicago's South Side in 1901.
For a century, the company reaped steady profits simply by opening more stores on street corners across America. But in the past few years, as pressure from government and health insurers has depressed margins on pharmaceutical sales, Walgreen CEO Greg Wasson has led an aggressive effort to boost revenue beyond pharmacy operations.
The company has unveiled fancy new stores with sushi and manicure stations and increased flu shots and other immunizations previously administered in doctors' offices. It's also been on an acquisition spree, grabbing New York-based drug chain Duane Reade in 2010 and the 144-store USA Drug chain, which has a strong presence in the South, in 2012 before the Alliance Boots announcement last summer.
Polzin said he did not know if consumer drug pricing would be affected as a result of the new partnership.
“Where there may be a difference is more that specialty drugs may become available through the retail channel, rather than being available only through mail service or at limited locations,” he said.
Walgreen did not say how much it expects to gain from the deal. AmerisourceBergen says the deal will bring in $28 billion in revenue in fiscal 2014. In 2012, Walgreen had revenues of $71.6 billion, about $45.1 billion of which came from drug sales.
Fitch Ratings predicted that the distribution contract, bringing together three of the largest buyers of generics in the world, would yield “greater generic profits and efficiencies in the intermediate and longer term.”
Cardinal Health, meanwhile, will lose one of its largest customers when Walgreen and AmerisourceBergen start their new agreement Sept. 1. Cardinal said Walgreen sales generated about 21% of its revenue in fiscal 2012.
The announcement came in conjunction with Walgreen's financial results for the fiscal second quarter. The company reported net income of $756 million in the quarter that ended Feb. 28 compared with $683 million in the same period a year earlier. Revenue was flat at $18.65 billion.
Walgreen took a hit in last year's quarter from a split with Express Scripts, the nation's largest pharmacy benefits manager. Walgreen fills prescriptions for Express Scripts, but the companies had let a contract between them expire in December 2011, and their new agreement didn't start until last September.
The split meant many Express Scripts customers migrated to new drugstores for their prescriptions at the start of 2012. Walgreen operated 8,072 drugstores as of Feb. 28, or 231 more than it had a year ago.
—Crain's Chicago Business with Associated Press
