Current Report
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 19, 2012
WALGREEN CO.
(Exact name of registrant as specified in its charter)
| Illinois | 1-604 | 36-1924025 | ||
|
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
||
| 108 Wilmot Road, Deerfield, Illinois | 60015 | |||
| (Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code: (847) 315-2500
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02 . | Results of Operations and Financial Condition . |
On June 19, 2012, Walgreen Co. issued a press release announcing financial results for the quarter ended May 31, 2012. A copy of this press release is furnished as Exhibit 99.1 hereto and is incorporated in this Item 2.02 by reference.
This information, including exhibits attached hereto and the information under Item 7.01 below, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. This information shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference to such disclosure in this Form 8-K in such a filing.
| Item 7.01 . | Regulation FD Disclosure . |
In addition to issuing the press releases attached as Exhibits 99.1 and 99.2 hereto, on June 19, 2012 (1) Walgreen Co. and Alliance Boots are conducting a conference call and webcast regarding the transactions contemplated by the Purchase and Option Agreement described below and related matters and (2) Walgreen Co. is conducting a separate conference call and webcast regarding Walgreen Co.’s results for the fiscal quarter ended May 31, 2012.
Slides prepared for the purposes of each of these conference calls are available on the Walgreens investor relations website at http://investor.walgreens.com.
| Item 8.01 . | Other Events . |
On June 19, 2012, Walgreen Co. and Alliance Boots issued a joint press release relating to the entry into a Purchase and Option Agreement by and among Walgreen Co., Alliance Boots GmbH, a private limited liability company incorporated under the laws of Switzerland and AB Acquisitions Holdings Limited, a private limited liability company incorporated under the laws of Gibraltar jointly controlled by affiliates of Stefano Pessina and Kohlberg Kravis Roberts & Co. L.P. and related matters. A copy of the press release is filed as Exhibit 99.2 hereto and is incorporated in this Item 8.01 by reference.
| Item 9.01 . | Financial Statements and Exhibits . |
| (d) | Exhibits . The following exhibits are provided as part of this Form 8-K: |
|
Exhibit |
Description |
|
| 99.1 | Walgreen Co. press release issued on June 19, 2012 | |
| 99.2 | Joint press release of Walgreen Co. and Alliance Boots issued on June 19, 2012 | |
Cautionary Note Regarding Forward-Looking Statements
Statements in this report that are not historical are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “expect,” “likely,” “outlook,” “forecast,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “goal,” “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 are subject to risks, uncertainties and assumptions that could cause actual results to vary materially from those indicated, including: the ability to satisfy the closing conditions and consummate the proposed transactions on a timely basis or at all, the occurrence of any event, change or other circumstances that could give rise to the termination of the Purchase and Option Agreement or the financing commitment letter, our ability to consummate the financing arrangements contemplated by the financing commitment letter, our ability to subsequently arrange for and consummate permanent financing on acceptable terms, risks that the proposed transactions disrupt plans and operations of either Walgreens or Alliance Boots, the ability to realize anticipated synergies, the ability to achieve anticipated financial results, the amount of costs, fees, expenses and charges incurred by Walgreens or Alliance Boots related to the transaction, the risks associated with international business operations, the risks associated with governance and control matters, whether the option to acquire the remainder of the Alliance Boots equity interest will be exercised, changes in vendor, payer and customer relationships and terms, and other factors described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, each of which is incorporated herein by reference and in other documents that we file or furnish with the Securities and Exchange Commission. 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 report, whether as a result of new information, future events, changes in assumptions or otherwise.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| WALGREEN CO. | ||||
| Date: June 19, 2012 | By: | /s/ Thomas J. Sabatino, Jr. | ||
| Title: | Executive Vice President, General Counsel and Corporate Secretary | |||
Exhibit 99.1
|
News From |
|
Walgreen Co. Corporate Communications • 108 Wilmot Road • Deerfield, Ill. 60015 • (847) 315-2500
| Media Contact: | Michael Polzin, 847-315-2920 | |
| Investor Contacts: | Rick Hans, CFA, 847-315-2385 | |
| Lisa Meers, CFA, 847-315-2361 |
| FOR IMMEDIATE RELEASE | http://news.walgreens.com |
Walgreen Co. Reports Fiscal 2012 Third Quarter Earnings
of $537 Million, or 62 Cents per Diluted Share
| • |
Results include 1 cent per diluted share due to costs related to strategic transaction with Alliance Boots announced today |
| • |
Operating cash flow reaches a record $1.9 billion in third quarter and a record $3.7 billion through first nine months of fiscal year |
| • |
Company increases quarterly dividend 22.2 percent to 27.5 cents per share, marking 37 th consecutive year it has increased dividend |
DEERFIELD, Ill., June 19, 2012 – Walgreen Co. (NYSE, NASDAQ: WAG) today announced earnings and sales results for the third quarter and first nine months of fiscal year 2012 ended May 31.
Net earnings for the third quarter were $537 million, a 10.8 percent decrease from $603 million in the same quarter a year ago. Net earnings per diluted share for the quarter decreased 4.9 percent to 62 cents, compared with 65 cents per diluted share in the year-ago quarter. Compared with the prior year’s quarter, the impact of no longer being part of the Express Scripts, Inc. pharmacy provider network as of Jan. 1, 2012, was 6 cents per diluted share net of cost controls. This year’s quarter also was negatively impacted by 1 cent per diluted share due to costs related to a definitive agreement to enter into a strategic transaction with Alliance Boots GmbH, the leading international pharmacy-led health and beauty group. The transaction, which was announced today, will bring together Walgreens and Alliance Boots to create the first global pharmacy-led, health and wellbeing enterprise.
(more)
Last year’s results include the impact of 1 cent per diluted share in restructuring and restructuring-related costs associated with the company’s Rewiring for Growth initiative.
“By focusing on our key strategies, we are positioning ourselves to be the first choice for health and daily living,” said Walgreens President and CEO Greg Wasson. “We continue to learn from our 200 pilot Well Experience format stores, including some Duane Reade locations in New York City. We also continue to advance the role of community pharmacy by expanding our pharmacy, health and wellness services and deepening relationships with a number of partners.”
Net earnings per diluted share for the first nine months of fiscal 2012 ended May 31 were $2.03 per diluted share, a decrease of 2.0 percent from $2.07 per diluted share in the first nine months of fiscal 2011. Last year’s results include the impacts of 2 cents per diluted share in costs associated with Rewiring for Growth and 1 cent per diluted share in Duane Reade integration costs. Net earnings for the first nine months of fiscal 2012 were $1.77 billion versus last year’s $1.92 billion, a 7.7 percent decrease.
FINANCIAL HIGHLIGHTS
Sales
Third quarter sales decreased 3.4 percent from the prior-year quarter to $17.8 billion, while sales for the first nine months increased 0.6 percent to $54.6 billion. Front-end comparable store sales (those open at least a year) decreased 0.9 percent in the third quarter, customer traffic in comparable stores decreased 2.6 percent and basket size increased 1.7 percent, while total sales in comparable stores decreased 6.6 percent.
Prescription sales, which accounted for 62.9 percent of sales in the quarter, decreased 6.6 percent, while prescription sales in comparable stores decreased 9.9 percent. The company filled 192 million prescriptions in the quarter, a decrease of 8.4 percent over last year’s third quarter. Prescriptions filled in comparable stores decreased 9.1 percent in the quarter.
“During the current pharmacy benefit selling season, we’re pleased with the very favorable response we are hearing from plans, payers and benefits consultants to the value that Walgreens brings to employers and patients,” said Wasson.
(more)
- 2 -
Gross Profit and SG&A
Total gross profit dollars decreased $140 million, or 2.7 percent, compared with the year-ago quarter, with gross profit margins increasing 0.1 percentage point versus the year-ago quarter to 28.2 as a percentage of sales. An increase in pharmacy profit margins was driven by generic drug sales, partially offset by market reimbursements, specialty pharmacy mix and LIFO. Front-end margins remained steady, with the positive impact from convenience and fresh foods, household items and inventory offset by E-commerce mix. The LIFO provision was $60 million this year versus $50 million last year.
Selling, general and administrative expense dollars decreased $62 million, or 1.6 percent, compared with the year-ago quarter. That decrease includes 0.6 percentage point of SG&A expenses associated with operating and integration costs for drugstore.com, acquired in June 2011.
The company delivered a record quarter and fiscal year to date of operating cash flow of $1.9 billion and $3.7 billion, respectively, driven by solid earnings and strong working capital progress.
Walgreens also announced today an increase in the quarterly dividend of 22.2 percent to 27.5 cents per share from the previous rate of 22.5 cents per share. The increase is consistent with the company’s goal of returning cash to shareholders including through dividends. The company has previously stated its goal of a long-term dividend payout target of 30 to 35 percent of net earnings. Walgreens has paid a dividend in 319 straight quarters (more than 79 years) and has now increased its dividend for 37 consecutive years. Over the past five years, Walgreens annual dividend rate has increased from 38 cents per share to $1.10 per share, resulting in a compound annual growth rate of nearly 24 percent.
At May 31, Walgreens operated 8,343 locations in all 50 states, the District of Columbia, Puerto Rico and Guam. The company has 7,890 drugstores nationwide, 175 more than a year ago. Walgreens also operates worksite health and wellness centers, infusion and respiratory services facilities, specialty pharmacies and mail service facilities. Its Take Care Health Systems subsidiary manages more than 700 in-store convenient care clinics and worksite health and wellness centers.
(more)
- 3 -
Walgreens will hold a conference call to discuss the third quarter results beginning at 9:30 a.m. Eastern time today, June 19. 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 relations website.
The replay also will be available from 12:30 p.m. Eastern time, June 19 through June 26 by calling 855-859-2056 within the U.S. and Canada, or 404-537-3406 outside the U.S. and Canada, using replay code 92760307.
Also, please refer to today’s separate release for additional information on Walgreens definitive agreement with Alliance Boots regarding a strategic transaction to create the first global pharmacy-led, health and wellbeing platform. The related conference call regarding that agreement is scheduled for 8 a.m. Eastern time today. The conference call will be simulcast through Walgreens investor relations website at: http://investor.walgreens.com .
Statements in this release that are not historical, including, without limitation, statements regarding the pharmacy benefit selling season, cost reduction initiatives, retained Express Scripts and/or Medco business, network participation, and the pending agreement with Alliance Boots, any of the transactions contemplated thereby and their possible effects, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “expect,” “likely,” “outlook,” “forecast,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “goal,” “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, but not limited to, changes in economic and market conditions, competition, risks associated with new business areas and activities, changes in vendor, payer and customer relationships, the availability and cost of real estate and construction, risks associated with acquisitions and strategic investments, including our ability to satisfy the closing conditions and consummate the proposed transactions with Alliance Boots and related financing matters on a timely basis or at all, risks relating to our ability to realize anticipated synergies and achieve anticipated financial results; risks associated with international business operations, the ability to realize anticipated results from capital expenditures and cost reduction initiatives, outcomes of legal and regulatory matters, and changes in legislation or regulations. These and other risks, assumptions and uncertainties are described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, each of which is incorporated herein by reference, and in other documents that we file or furnish with the Securities and Exchange Commission. 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 distribution of this release, whether as a result of new information, future events, changes in assumptions or otherwise.
(more)
- 4 -
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(In Millions, Except Per Share Amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| May 31, 2012 | May 31, 2011 | May 31, 2012 | May 31, 2011 | |||||||||||||
|
Net sales |
$ | 17,752 | $ | 18,371 | $ | 54,560 | $ | 54,217 | ||||||||
|
Cost of sales (1) |
12,738 | 13,217 | 39,053 | 38,794 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Gross Profit |
5,014 | 5,154 | 15,507 | 15,423 | ||||||||||||
|
Selling, general and administrative expenses |
4,141 | 4,203 | 12,629 | 12,324 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Operating Income |
873 | 951 | 2,878 | 3,099 | ||||||||||||
|
Interest expense, net |
17 | 18 | 51 | 56 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Earnings Before Income Tax Provision |
856 | 933 | 2,827 | 3,043 | ||||||||||||
|
Income tax provision |
319 | 330 | 1,053 | 1,121 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net Earnings |
$ | 537 | $ | 603 | $ | 1,774 | $ | 1,922 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net earnings per common share: |
||||||||||||||||
|
Basic |
$ | .63 | $ | .66 | $ | 2.04 | $ | 2.08 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Diluted |
$ | .62 | $ | .65 | $ | 2.03 | $ | 2.07 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Dividends declared |
$ | .2250 | $ | .1750 | $ | .6750 | $ | .5250 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Average shares outstanding |
859.8 | 911.3 | 869.6 | 922.2 | ||||||||||||
|
Dilutive effect of stock options |
5.4 | 10.9 | 5.4 | 6.8 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Average Diluted Shares |
865.2 | 922.2 | 875.0 | 929.0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Percent of Sales | Percent of Sales | |||||||||||||||
|
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
|
Cost of Sales |
71.8 | 71.9 | 71.6 | 71.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Gross Margin |
28.2 | 28.1 | 28.4 | 28.4 | ||||||||||||
|
Selling, general and administrative expenses |
23.3 | 22.9 | 23.1 | 22.7 | ||||||||||||
|
Interest expense, net |
0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Earnings Before Income Tax Provision |
4.8 | 5.1 | 5.2 | 5.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Income tax provision |
1.8 | 1.8 | 1.9 | 2.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net Earnings |
3.0 | % | 3.3 | % | 3.3 | % | 3.5 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Fiscal 2012 third quarter includes a LIFO provision of $60 million versus $50 million in the previous year. |
Fiscal 2012 nine months includes a LIFO provision of $177 million versus $148 million in the previous year.
(more)
- 5 -
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions)
| May 31, 2012 | May 31, 2011 | |||||||
|
Assets |
||||||||
|
Current Assets: |
||||||||
|
Cash and cash equivalents |
$ | 1,995 | $ | 2,652 | ||||
|
Accounts receivable, net |
2,294 | 2,598 | ||||||
|
Inventories |
7,004 | 7,552 | ||||||
|
Other current assets |
277 | 203 | ||||||
|
|
|
|
|
|||||
|
Total Current Assets |
11,570 | 13,005 | ||||||
|
Non-Current Assets: |
||||||||
|
Property and Equipment, at cost, less accumulated depreciation and amortization |
11,790 | 11,130 | ||||||
|
Goodwill |
2,168 | 1,898 | ||||||
|
Other non-current assets |
1,671 | 1,283 | ||||||
|
|
|
|
|
|||||
|
Total Non-Current Assets |
15,629 | 14,311 | ||||||
|
|
|
|
|
|||||
|
Total Assets |
$ | 27,199 | $ | 27,316 | ||||
|
|
|
|
|
|||||
|
Liabilities and Shareholders’ Equity |
||||||||
|
Current Liabilities: |
||||||||
|
Short-term borrowings |
$ | 13 | $ | 11 | ||||
|
Trade accounts payable |
4,433 | 5,015 | ||||||
|
Accrued expenses and other liabilities |
2,851 | 2,809 | ||||||
|
Income taxes |
204 | 83 | ||||||
|
|
|
|
|
|||||
|
Total Current Liabilities |
7,501 | 7,918 | ||||||
|
Non-Current Liabilities: |
||||||||
|
Long-term debt |
2,387 | 2,384 | ||||||
|
Deferred income taxes |
368 | 419 | ||||||
|
Other non-current liabilities |
1,903 | 1,872 | ||||||
|
|
|
|
|
|||||
|
Total Non-Current Liabilities |
4,658 | 4,675 | ||||||
|
|
|
|
|
|||||
|
Shareholders’ Equity |
15,040 | 14,723 | ||||||
|
|
|
|
|
|||||
|
Total Liabilities and Shareholders’ Equity |
$ | 27,199 | $ | 27,316 | ||||
|
|
|
|
|
|||||
(more)
- 6 -
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions)
| Nine Months Ended | ||||||||
| May 31, 2012 | May 31, 2011 | |||||||
|
Cash flows from operating activities: |
||||||||
|
Net earnings |
$ | 1,774 | $ | 1,922 | ||||
|
Adjustments to reconcile net earnings to net cash provided by operating activities - |
||||||||
|
Depreciation and amortization |
856 | 798 | ||||||
|
Deferred income taxes |
92 | 136 | ||||||
|
Stock compensation expense |
77 | 67 | ||||||
|
Other |
27 | 39 | ||||||
|
Changes in operating assets and liabilities - |
||||||||
|
Accounts receivable, net |
230 | (114 | ) | |||||
|
Inventories |
1,106 | (151 | ) | |||||
|
Other current assets |
33 | (8 | ) | |||||
|
Trade accounts payable |
(389 | ) | 430 | |||||
|
Accrued expenses and other liabilities |
(248 | ) | 51 | |||||
|
Income taxes |
13 | (29 | ) | |||||
|
Other non-current assets and liabilities |
92 | 140 | ||||||
|
|
|
|
|
|||||
|
Net cash provided by operating activities |
3,663 | 3,281 | ||||||
|
|
|
|
|
|||||
|
Cash flows from investing activities: |
||||||||
|
Additions to property and equipment |
(1,102 | ) | (699 | ) | ||||
|
Proceeds from sale of assets |
40 | 54 | ||||||
|
Business and intangible asset acquisitions, net of cash received |
(421 | ) | (182 | ) | ||||
|
Payments related to sale of business |
(45 | ) | — | |||||
|
Other |
(22 | ) | (17 | ) | ||||
|
|
|
|
|
|||||
|
Net cash used for investing activities |
(1,550 | ) | (844 | ) | ||||
|
|
|
|
|
|||||
|
Cash flows from financing activities: |
||||||||
|
Stock purchases |
(1,191 | ) | (1,393 | ) | ||||
|
Proceeds related to employee stock plans |
120 | 203 | ||||||
|
Cash dividends paid |
(593 | ) | (488 | ) | ||||
|
Other |
(10 | ) | 13 | |||||
|
|
|
|
|
|||||
|
Net cash used for financing activities |
(1,674 | ) | (1,665 | ) | ||||
|
|
|
|
|
|||||
|
Changes in cash and cash equivalents: |
||||||||
|
Net increase in cash and cash equivalents |
439 | 772 | ||||||
|
Cash and cash equivalents at beginning of year |
1,556 | 1,880 | ||||||
|
|
|
|
|
|||||
|
Cash and cash equivalents at end of period |
$ | 1,995 | $ | 2,652 | ||||
|
|
|
|
|
|||||
# # # # #
- 7 -
Exhibit 99.2
|
|
WALGREENS AND ALLIANCE BOOTS FORM STRATEGIC PARTNERSHIP TO CREATE THE FIRST GLOBAL PHARMACY-LED, HEALTH AND WELLBEING ENTERPRISE
- Together Walgreens and Alliance Boots are uniquely positioned to anticipate the rapidly
changing global health and wellbeing marketplace to the benefit of customers, employees
and business partners -
- Walgreens to initially invest $6.7 billion in cash and stock to acquire a 45% equity interest in Alliance
Boots, with the option to proceed to a full combination -
- Transaction expected to be substantially accretive to Walgreens net earnings per diluted
share in Year One, with a compelling return on investment -
DEERFIELD, IL – June 19, 2012 – Walgreen Co. (NYSE: WAG) (NASDAQ: WAG), the largest drug store chain in the U.S., and Alliance Boots GmbH, the leading international pharmacy-led health and beauty group, today announce that they have entered into a strategic transaction designed to bring together the strengths and expertise of both companies to create the first global pharmacy-led, health and wellbeing enterprise.
This transaction will bring together two great companies with iconic brands, complementary geographic footprints, shared values and a heritage of trusted healthcare services, through pharmaceutical wholesaling and community pharmacy care, dating back over 100 years. Walgreens and Alliance Boots are the largest retail pharmacy, health and daily living destinations in the U.S. and Europe, respectively, and together they would be:
| • |
the global leader in pharmacy-led, health and wellbeing retail with over 11,000* stores in 12* countries |
| • |
the largest global pharmaceutical wholesale and distribution network with over 370* distribution centers delivering to more than 170,000* pharmacies, doctors, health centers and hospitals in 21* countries |
| • |
the world’s largest purchaser of prescription drugs and many other health and wellbeing products |
Together Walgreens and Alliance Boots would have:
| • |
unmatched supply chain and procurement expertise, offering customers innovative solutions and optimal efficiencies |
| • |
an unparalleled portfolio of retail and business brands (Walgreens, Duane Reade, Boots and Alliance Healthcare), as well as increasingly global health and beauty product brands (No7, Botanics and Boots Laboratories) |
| • |
diversified and robust profit pools across the U.S., Europe and key emerging markets |
| • |
a unique platform for growth in developed and emerging markets |
Walgreens will invest approximately $6.7 billion in cash and stock (comprised of $4.0 billion in cash and 83.4 million shares) in exchange for a 45% equity ownership stake in Alliance Boots. Walgreens will have the option to proceed to a full combination by acquiring the remaining 55%
of Alliance Boots in approximately three years’ time. At the current Walgreens share price and at a $1.55=£1 exchange rate, the second step of the transaction would be valued at approximately $9.5 billion in cash and stock, plus the assumption of Alliance Boots then-outstanding debt. Completion of the initial investment, which is subject to various regulatory approvals, is expected to take place by September 1, 2012.
The Boards of Directors of Walgreens and Alliance Boots have unanimously approved the transaction. Upon the completion of Walgreens initial investment in Alliance Boots, Gregory Wasson, President and Chief Executive Officer of Walgreens, Wade Miquelon, Executive Vice President and Chief Financial Officer, Thomas Sabatino, Executive Vice President and General Counsel, and Robert Zimmerman, Senior Vice President and Chief Strategy Officer, will join the Alliance Boots Board of Directors. In addition, Stefano Pessina, Executive Chairman of Alliance Boots, and Dominic Murphy, Director and Member of KKR & Co. L.P., will join the Walgreens Board of Directors. Alliance Santé Participations S.A., of which Stefano Pessina is a director and whose ultimate ownership is a family trust, will hold a significant stake in Walgreens, which it intends to hold for the long term. KKR, through its funds, will also be an important shareholder of Walgreens.
The transaction is expected to be accretive to Walgreens net earnings per diluted share in the first year following completion of the initial step of the transaction, by approximately $0.23 to $0.27, excluding one-time transaction costs. Walgreens expects combined synergies across both companies to be between $100 million and $150 million in the first year and $1 billion by the end of 2016. The most significant short-term and long-term opportunities are:
| • |
procurement synergies, including prescription drug, OTC, front-of-store purchasing and indirect spend; and |
| • |
revenue synergies, as a result of introducing Alliance Boots product brands to Walgreens and Duane Reade stores and sharing of best practices, particularly in pharmacy operations, health and wellness services and logistics. |
The transaction has been structured to allow synergies to be realized by the respective management teams working closely together on key projects, while progressing to full integration in approximately three years’ time. Walgreens and Alliance Boots believe that this transaction structure maximizes the potential for value creation, while minimizing the initial business disruption and allowing time for thoughtful integration planning.
Gregory Wasson, President and CEO of Walgreens, said, “At Walgreens, our mission is to be America’s first choice for health and daily living – helping our customers to live well, stay well and get well. Today’s announcement represents an exciting opportunity to accelerate our five core strategies and advance that mission – in the U.S. and now internationally. We are bringing together the strengths and expertise of each company to create a worldwide healthcare platform for the future that can provide innovative ways to address global health and wellness challenges.
2
“We are looking forward to working with Alliance Boots to leverage our combined strengths and provide an even broader range of innovative, cost-effective products and services to patients and customers across the healthcare landscape. Together we will be ideally positioned to expand our customer offerings in our existing markets and become the health and wellbeing partner of choice in emerging markets.”
Stefano Pessina, Executive Chairman of Alliance Boots, commented, “This strategic transaction represents a further vital step in achieving our vision of becoming a global healthcare leader. We believe that it will bring clear benefits to all stakeholders, creating significant and sustainable industrial value through synergies and the deployment of our joint expertise. The fit is natural, Walgreens consumer profile in the U.S. is similar to Boots in the UK in many ways: a trusted and much-loved pharmacy brand with a strong heritage. Our pharmaceutical wholesale businesses will provide their logistics know-how to Walgreens and are well placed to be one of the growth engines of the new enterprise.
“Today’s announcement is testimony to the great track record and accomplishments of the Alliance Healthcare and Boots teams that have delivered strong growth since the creation of Alliance Boots six years ago and its subsequent privatization. I strongly believe that this transaction offers further significant growth opportunities and marks a very positive milestone for the healthcare industry as a whole.”
With the exercise of the option by Walgreens to proceed to a full combination, the new combined company will be a true world leader in its field, with the combined scale, expertise and financial strength to grow rapidly in existing markets and fast growing emerging markets across the globe, within existing business lines and in new segments. These growth opportunities are expected to be key drivers of long-term shareholder value.
The pharmacy-led retail and wholesale businesses of both companies will continue to operate under their well-known and trusted brand names. Upon completion of the second step of the transaction, the name of the new combined entity will reflect the strong heritage of both companies.
Given the complementary geographic footprints of Walgreens and Alliance Boots, there are no plans for job reductions at either company as a result of the transaction. Walgreens will maintain its existing headquarters in Deerfield, Illinois; and Alliance Boots remains committed to its current support offices across Europe, including in the UK, as well as keeping the Boots operational hub in Nottingham, England.
Transaction Structure
Under the terms of the agreement announced today, Walgreens will pay a total of $6.7 billion to acquire a 45% equity interest in Alliance Boots. This payment will consist of $4.0 billion in cash and 83.4 million shares of Walgreens common stock. This is equivalent to $2.7 billion, at the Walgreens closing share price of $31.96 on June 18, 2012. The owners of Alliance Boots will enter into lock-up agreements of varying lengths with respect to the Walgreens shares they will acquire in the transaction. Walgreens expects to complete its initial investment in Alliance Boots by September 1, 2012, at which time it will account for its interest in Alliance Boots using the equity method of accounting.
3
During the six-month period beginning two and a half years after the initial closing, Walgreens has the option, but not the obligation, to elect to proceed to a full combination and acquire the remaining 55% equity interest in Alliance Boots. In conjunction with such an election, Walgreens would seek shareholder approval of the transaction in accordance with stock exchange rules. If the option is exercised, Walgreens will pay £3.1 billion (equivalent to $4.9 billion**) in cash and issue 144.3 million shares for the remaining equity of Alliance Boots, subject to the price of Walgreens shares of common stock at that point not being below $31.18 per share. If the price is below this level, the difference in value will be made up by a cash payment or the issuance of additional shares of common stock at Walgreens election. In the event that Walgreens does not exercise its option, under certain circumstances, its ownership of Alliance Boots will reduce from 45% to 42% in exchange for nominal consideration to Walgreens.
Walgreens initial investment and option excludes the Alliance Boots minority interest in Galenica, the Swiss healthcare group. The Alliance Boots investment in Galenica will continue to be owned by Alliance Boots and its existing shareholders for the benefit of those shareholders.
Conditions
The closing of Walgreens initial investment in Alliance Boots is subject to the satisfaction or waiver of certain conditions including notification and clearance by antitrust authorities in the U.S. and Germany. No approval by the shareholders of Walgreens is required to complete the initial investment.
Financing
Walgreens plans to finance the cash payment deliverable at the initial closing through existing cash and new borrowings. Commitments for a $3.5 billion bridge facility have been received from Goldman, Sachs & Co. and Bank of America Merrill Lynch and are subject to customary conditions. Based on the anticipated closing, Walgreens currently expects to finance the initial investment using this bridge facility and to subsequently replace that facility with permanent financing.
Advisors
Walgreens financial advisors are Goldman, Sachs & Co. and Lazard, and its legal advisors are Wachtell, Lipton, Rosen & Katz and Allen & Overy. Alliance Boots financial advisor is Centerview Partners and its legal advisors are Darrois Villey Maillot Brochier and Simpson Thacher & Bartlett LLP.
4
Conference Call / Webcast
Walgreens will hold a conference call to discuss today’s announcement beginning at 8:00 a.m. Eastern time today, June 19. 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 will be available on the investor relations website.
The replay also will be available from 11:00 a.m. Eastern time, June 19, 2012 through June 26, 2012 by calling 855-859-2056 within the U.S. and Canada, or +1 404-537-3406 outside the U.S. and Canada, using replay code 92759086.
Transaction website
For further information and to view video material concerning this announcement, please visit the microsite at www.globalhealthandwellbeing.com.
Additional Information
Walgreens intends to promptly file with the Securities and Exchange Commission a current report on Form 8-K, which will include the Purchase and Option Agreement and related documents. You should refer to the Form 8-K when it is available for more detailed information regarding this strategic transaction between Walgreens and Alliance Boots and related matters.
About Walgreens
As the nation's largest drugstore chain with fiscal 2011 sales of $72 billion, Walgreens (www.walgreens.com) vision is to become America’s first choice for health and daily living. Each day, Walgreens provides nearly 6 million customers the most convenient, multichannel access to consumer goods and services and trusted, cost-effective pharmacy, health and wellness services and advice in communities across America. Walgreens scope of pharmacy services includes retail, specialty, infusion, medical facility and mail service, along with respiratory 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 7,890 drugstores in all 50 states, the District of Columbia and Puerto Rico. Take Care Health Systems is a Walgreens subsidiary that is the largest and most comprehensive manager of worksite health and wellness centers and in-store convenient care clinics, with more than 700 locations throughout the country.
About Alliance Boots
Alliance Boots is a leading international, pharmacy-led health and beauty group delivering a range of products and services to customers. For the financial year ended 31 March 2012, Alliance Boots reported revenue of £23.0 billion ($35.7 billion**), (£25.4 billion ($39.4 billion**) including share of associates and joint ventures), and EBITDA of £1,443 million ($2,237 million**), (£1,568 million ($ 2,430 million**) including share of associates and joint ventures).
5
Working in close partnership with manufacturers and pharmacists, Alliance Boots is committed to improving health in the local communities it serves and helping its customers and patients to look and feel their best. Alliance Boots focus is on growing its two core businesses: pharmacy-led health and beauty retailing and pharmaceutical wholesaling and distribution.
Alliance Boots has a presence in more than 25* countries and employs over 116,000* people. Alliance Boots has pharmacy-led health and beauty retail businesses in 11* countries and operates more than 3,330* health and beauty retail stores, of which just over 3,200* have a pharmacy. In addition, Alliance Boots has around 625* optical practices, of which around 185* operate on a franchise basis. Its pharmaceutical wholesale businesses supply medicines, other healthcare products and related services to more than 170,000* pharmacies, doctors, health centers and hospitals from over 370* distribution centers in 21* countries.
| * | Figures include Alliance Boots associates and joint ventures (including Galenica). |
| ** | At a $1.55=£1 exchange rate. |
Contacts
Investor Relations (Walgreens):
Rick Hans / Lisa Meers
+1 847 315 2385 / +1 847 315 2361
Investor Relations (Alliance Boots):
Brunswick Group
+44 (0)20 7404 5959
Investor.relations@allianceboots.com
Media Relations (Walgreens):
Michael Polzin, Walgreens
+1 847 372 3502
Steve Lipin / Gemma Hart, Brunswick Group
+1 212 333 3810
Media Relations (Alliance Boots):
Yves Romestan / Laura Vergani / Katie Johnson, Alliance Boots
+44 (0)207 980 8585
Justine McIlroy / Tim Danaher, Brunswick Group
+44 (0)20 7404 5959
Walgreens Cautionary Note Regarding Forward-Looking Statements
Statements in this release that are not historical are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “expect,” “likely,” “outlook,” “forecast,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “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 are subject to risks, uncertainties and assumptions that could cause actual results to vary materially from those indicated, including: the ability to satisfy
6
the closing conditions and consummate the proposed transactions on a timely basis or at all, the occurrence of any event, change or other circumstances that could give rise to the termination of the Purchase and Option Agreement or the financing commitment letter, Walgreens ability to consummate the financing arrangements contemplated by the financing commitment letter, Walgreens ability to subsequently arrange for and consummate permanent financing on acceptable terms, risks that the proposed transactions disrupt plans and operations of either Walgreens or Alliance Boots, the ability to realize anticipated synergies, the ability to achieve anticipated financial results, the amount of costs, fees, expenses and charges incurred by Walgreens or Alliance Boots related to the transaction, the risks associated with international business operations, the risks associated with Walgreens lack of majority control over the Alliance Boots business, whether the option to acquire the remainder of the Alliance Boots equity interest will be exercised, changes in vendor, payer and customer relationships and terms, and other factors described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, each of which is incorporated herein by reference and in other documents that we file or furnish with the Securities and Exchange Commission. 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 report, whether as a result of new information, future events, changes in assumptions or otherwise.
7