Boots executive sees Walgreen tie-up fuelling sector M&A

Fri Jun 22, 2012 8:26pm BST

A sign outside a store of pharmacy and cosmetics chain Boots is seen in London, May 16, 2011. REUTERS/Luke MacGregor

A sign outside a store of pharmacy and cosmetics chain Boots is seen in London, May 16, 2011.

Credit: Reuters/Luke MacGregor

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(Reuters) - Alliance Boots Holdings Ltd's ABN.UL multibillion-dollar tie-up with U.S. drugstore chain Walgreen Co (WAG.N) will spark other blockbuster deals in the consolidating and globalizing industry, said the executive chairman of European health and beauty group.

Speaking on Friday at a quickly organized investor conference to further explain the merits of the deal announced on Tuesday, Stefano Pessina said Walgreen and Alliance Boots will have "a couple of years" head start on other players as rivals seek their own deals.

"This move will trigger a number of mergers" elsewhere in the industry as large players look to expand into new markets, particularly emerging markets like China, and widen their product offerings in drugstores, Pessina said.

Walgreen, the biggest U.S. drugstore chain, is initially taking a 45 percent stake in Alliance Boots, which also operates pharmacies, for $6.7 billion (4.29 billion pounds) in cash and stock, creating the world's biggest buyer of prescription drugs and giving both companies reach into new markets.

Walgreen plans to buy the rest in 3 years, paying $4.9 billion in cash, issuing 144.3 million shares for the remaining equity and assuming Alliance Boots' debt.

The combined company would also look at making acquisitions of wholesalers and retailers in new markets, Pessina said.

The companies' respective position in their home markets gives them a big advantage, executives said.

"I don't know that there are other brands out there that can be brought together (like these two)," Walgreen Chief Executive Greg Wasson told investors.

Analysts have questioned the deal's price tag and Walgreen's decision to bet on a European company given the euro zone's debt crisis. Walgreen shares hit a yearly low on Wednesday.

When asked by an investor why Walgreen didn't simply opt to repurchase shares to boost earnings per share instead of putting billions on the line, Wasson said the "once in a lifetime" deal would help Walgreen grow for the next 20 years and touted Boots' international expertise and research and development abilities.

The company also wants to become less reliant on the U.S. market, where sales have fallen because it no longer fills prescriptions for members of pharmacy benefits manager Express Scripts Holding Co (ESRX.O) and where there is growing pressure on drug reimbursement rates.

Walgreen shares were up 2.9 percent to $30 in afternoon trading on Friday.

(Reporting By Phil Wahba in New York; Editing by Tim Dobbyn)

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