- Walgreens to seek shareholder approval
in connection with acquisition of remaining 55 percent of Alliance
Boots after initial 45 percent investment completed in 2012
- Option exercise accelerated ahead of
original option period
- Fully combined company to have blended
senior management team including Greg Wasson as president and CEO
and Stefano Pessina as executive vice chairman of combined company,
responsible for strategy and M&A Pessina also to chair new
strategy committee of the board of directors
- The new Walgreens Boots Alliance, Inc.
holding company will be headquartered in the Chicago area
- Company outlines new three-year “Next
Chapter” plan that sets strategic goals for the combined
company
- Walgreens establishes new adjusted EPS
goal for fiscal 2016 of $4.25-$4.60
- Company accelerating cost-reduction
initiatives targeted to achieve $1 billion in savings by end of
fiscal 2017
- Walgreens board of directors authorizes
new capital allocation policy that includes a new $3 billion share
repurchase program; declares 7.1 percent quarterly dividend
increase to 33.75 cents per share
Walgreens (NYSE: WAG) (Nasdaq: WAG) today said it has exercised
its option to complete the second step of its strategic transaction
with Alliance Boots GmbH ahead of the original option period, which
was between February and August 2015. The transaction, subject to
shareholder and various regulatory approvals, would fully combine
the two companies to form the first global pharmacy-led, health and
wellbeing enterprise.
This action follows the launch of the companies’ long-term
strategic partnership in June 2012, when Walgreens acquired a 45
percent equity ownership in Alliance Boots, with the option to
proceed to a full combination by acquiring the remaining 55 percent
of Alliance Boots in three years’ time (Step 2). Walgreens expects
to close the transaction in the first quarter of calendar 2015.
Walgreens also announced the following decisions related to
moving forward with Step 2:
- A new holding company to be formed in
connection with the transaction will be named Walgreens Boots
Alliance, Inc., and will include four divisions: Walgreen Co. (the
largest drugstore chain in the United States); Boots (the U.K. and
Republic of Ireland’s leading pharmacy-led health and beauty
retailer); Pharmaceutical Wholesale and International Retail
(including Alliance Healthcare, Europe’s largest pharmaceutical
wholesaler); and Global Brands. In addition, the combined company
is establishing a cross-divisional global pharmacy market access
group.
- Upon closing, the combined enterprise
will blend senior management from both companies including
Walgreens President, CEO and board member Greg Wasson who will be
president and CEO of Walgreens Boots Alliance, and Stefano Pessina,
executive chairman of Alliance Boots, who will be executive vice
chairman of the combined company responsible for strategy and
M&A reporting to Wasson, and chairman of a new strategy
committee of the board of directors.
- Jim Skinner will serve as the
non-executive chairman of the board of directors for the combined
company.
- The Walgreens Boots Alliance holding
company will be headquartered in the Chicago area, while Walgreens
operations will remain headquartered in Deerfield, Ill. Boots
operations also will remain headquartered at its current location
in Nottingham, U.K.
- The company is outlining a new
three-year “Next Chapter” plan through fiscal 2017 that sets
strategic goals for the combined company. The plan reflects
significant value-creating opportunities for the combined
enterprise to drive long-term shareholder value.
- In conjunction with its strategic plan,
the company is establishing a new adjusted earnings per share goal
for fiscal 2016 of $4.25-$4.60.
- The adjusted EPS goal includes
accelerated cost reduction initiatives that target $1 billion in
savings by the end of fiscal 2017 to establish an efficient global
enterprise.
- Walgreens board of directors also
authorized a new capital allocation policy that includes a $3
billion share repurchase program through the end of fiscal 2016. In
addition, the board declared a 7.1 percent quarterly dividend
increase to 33.75 cents per share.
Walgreens Boots Alliance combines two leading companies with
iconic brands, complementary geographic footprints, shared values
and a heritage of trusted health care services through
pharmaceutical wholesaling and community pharmacy care, dating back
more than 100 years each. Combining the companies will create a new
global leader in pharmacy-led health and wellbeing retail with more
than 11,000* stores in 10* countries and an unparalleled portfolio
of retail and business brands, as well as increasingly global
health and beauty product brands. The full combination also will
establish the world’s largest pharmaceutical wholesale and
distribution network with more than 370* distribution centers
delivering to more than 180,000* pharmacies, doctors, health
centers and hospitals in 20* countries. Walgreens Boots Alliance
will be the world’s largest purchaser of prescription drugs and
many other health and wellbeing products. The combined size, scale
and expertise will help Walgreens and Alliance Boots expand the
supply, and address the rising cost, of prescription drugs in
America and worldwide.
“We are excited to move forward with the next important step in
becoming a new kind of global health care leader,” said Wasson.
“Expanding globally with Alliance Boots will make quality health
care more affordable and accessible to communities here in America
and around the world. In addition, Stefano and I are pleased with
the comprehensive plan we’ve announced today as part of Step 2.
These elements will provide additional shareholder value creation,
both in the near and long term. I congratulate our teams for
getting us to this point and together we have a bright future.”
Pessina said, “The expected creation of the new enterprise will
represent the most significant milestone in the history of Alliance
Boots and, importantly, a very positive step for the health care
industry as a whole. Together with Walgreens, we have already made
good progress over the past two years and I strongly believe that
the merger will bring significant growth opportunities for both
mature and emerging markets. Today’s announcement reflects the
great track record and accomplishments of our people to date and I
am convinced that their skills, expertise and commitment will
continue to make a positive contribution in the years to come. This
combination is a true partnership, further evidenced by the
composition of the future management team of Walgreens Boots
Alliance.”
Under the terms of the revised agreement announced today, the
period during which Walgreens is permitted to exercise its option
to acquire the remaining 55 percent of Alliance Boots that it does
not currently own, in exchange for £3,133 million in cash
(equivalent to approximately $5.29 billion at a current $1.69=£1
exchange rate) payable in British pounds sterling, and
approximately 144.3 million shares of common stock of Walgreens,
has been accelerated to begin on Aug. 5, 2014 and end on Feb. 5,
2015. Pursuant to the agreement, Walgreens exercised the option
through an affiliate on Aug. 5.
Blended Management Team
Leading Walgreens Boots Alliance will be a top management team
led by Wasson and consisting of senior executives from both
companies. In addition to Wasson’s and Pessina’s roles, the
following appointments are being announced:
- Ornella Barra, chief executive,
Wholesale and Brands of Alliance Boots, will become executive vice
president of Walgreens Boots Alliance and president and chief
executive of global wholesale and international retail.
- Jeff Berkowitz, president of Walgreens
Boots Alliance Development GmbH, will serve as executive vice
president of Walgreens Boots Alliance and president of pharma and
global market access, which will include responsibility for
specialty pharmacy.
- Alex Gourlay, Walgreens president of
customer experience and daily living, will become executive vice
president of Walgreens Boots Alliance and president of
Walgreens.
- Tim McLevish, previously announced as
Walgreens executive vice president and chief financial officer,
will serve in that role in a global capacity for Walgreens Boots
Alliance.
- Ken Murphy, managing director, Health
& Beauty International and Brands of Alliance Boots, will serve
as executive vice president of Walgreens Boots Alliance and
president of global brands.
- Simon Roberts, managing director,
Health & Beauty, UK and the Republic of Ireland of Alliance
Boots, will serve as executive vice president of Walgreens Boots
Alliance and president of Boots.
- Tom Sabatino, Walgreens chief
administrative officer and general counsel, will serve as executive
vice president and global chief legal and administrative officer of
Walgreens Boots Alliance.
- Tim Theriault, chief information,
innovation and improvement officer at Walgreens, will assume the
role of executive vice president and global chief information
officer of Walgreens Boots Alliance.
- Kathleen Wilson-Thompson, Walgreens
chief human resources officer, will become executive vice president
and global chief human resources officer of Walgreens Boots
Alliance.
Domicile of Walgreens Boots Alliance Enterprise
The fully combined Walgreens Boots Alliance global enterprise
will be domiciled in the United States and headquartered in the
Chicago area. Walgreens operations will remain headquartered in
Deerfield, Ill., and Boots operations will remain headquartered at
its current location in Nottingham, U.K.
In connection with moving forward with the option exercise, and
given the potentially significant business, financial, legal and
competitive implications, Walgreens management and the board of
directors thoroughly evaluated the possibility of combining
Walgreens and Alliance Boots under a foreign parent company in an
“inversion” transaction. The original option transaction would not
qualify for an inversion under the current tax inversion rules. The
company and board of directors, including a special committee of
independent directors, and with the benefit of leading advisors in
the fields of tax policy and inversions, undertook an extensive
analysis to explore the feasibility of a restructured inversion
transaction that would provide the company with the customary level
of confidence needed to withstand IRS review and scrutiny. As part
of this process, the company considered a wide range of issues,
including the potential financial benefits (and their
sustainability) and the technical viability of a restructured
inversion transaction under current U.S. law. The company also was
mindful of the ongoing public reaction to a potential inversion and
Walgreens unique role as an iconic American consumer retail company
with a major portion of its revenues derived from government-funded
reimbursement programs.
“In line with our fiduciary duty to the company and our
shareholders, we undertook an extensive and rigorous analysis with
a team of leading experts to determine the most optimal – and
sustainable – course of action,” said Wasson. “We took into account
all factors, including that we could not arrive at a structure that
provided the company and our board with the requisite level of
confidence that a transaction of this significance would need to
withstand extensive IRS review and scrutiny. As a result the
company concluded it was not in the best long-term interest of our
shareholders to attempt to re-domicile outside the U.S. The board
did, however, believe accelerating the option to exercise Step 2
was in the best interest of our shareholders, and with this
decision, we are now moving forward on an accelerated basis to
create the global leader in pharmacy-led health and wellbeing.”
Three-Year “Next Chapter” Plan and Financial Goals
With the full combination, Walgreens Boots Alliance will be
positioned for a new era of profitable growth and is aggressively
pursuing future opportunities to drive sustainable shareholder
value over the long term. To do so, the company is launching a new
three-year “Next Chapter” plan that will maximize the scope and
scale of the new combined company. Through the plan, core business
performance will be accelerated by providing:
- A differentiated retail experience that
transforms the retail model for health and wellness and changes the
way women shop for beauty
- Integrated pharmacy and health care
that advance the role of pharmacists and provide access to
innovative health care services
- Global pharmaceutical services that
reinvent the pharmaceutical value chain and deliver a seamless
specialty pharmacy model
With the plan, the combined company is establishing goals for
fiscal 2016 including revenue of between $126 billion and $130
billion and adjusted earnings per share of $4.25 to $4.60. In
addition, the combined company anticipates exceeding the previously
established $1 billion synergy goal.
The company’s continuing focus on improving core performance in
the near-term at both Walgreens and Alliance Boots also remains a
critical component of the “Next Chapter” plan. “As we launch our
global plan, we are more focused than ever on what it will take to
compete and succeed on the world stage,” said Wasson. “We are
uniquely positioned to be a leader and a champion for accessible,
affordable health care, and that means continuing to innovate, to
find new ways to be as efficient as possible, and more agile and
nimble as we compete in the worldwide market. We also are
encouraged by the improving performance of our daily living
business and the further potential of our expanded beauty and own
brands portfolio to drive margin expansion.”
Cost Reduction Initiative
As part of the combined company’s goal to establish an efficient
global platform, the management team is accelerating a
multi-faceted cost-reduction initiative across the
enterprise. The $1 billion, three-year plan includes
corporate, field and store-level cost reductions. The company is
making significant progress in an effort that is already under way
in order to begin realizing incremental benefits in fiscal 2015.
Additional details will be provided in coming quarters as the
company recognizes certain costs associated with these initiatives.
These cost savings are additive to the synergies discussed
above.
“Walgreens has demonstrated a strong focus on cost control as
adjusted SG&A growth has slowed significantly from historical
trends,” said Wasson. “We have made this impact by driving
efficiencies across the enterprise, and we are continuing to focus
on that. Earlier this year, we announced enterprise optimization
initiatives to further accelerate these efforts, which we’ve
executed this fiscal year through strategic closures of certain
distribution centers and stores, exiting certain businesses and
driving cost reduction programs at our headquarters and in the
field. We also plan to expand these efforts as we leverage the
expertise of both companies and move forward integrating Walgreens
and Alliance Boots.”
Capital Allocation Policy
The board of directors has approved a new capital allocation
policy for the combined enterprise. The policy is designed to
ensure a balanced and disciplined approach to capital intended to
drive business growth and generate strong returns, while returning
cash to shareholders through dividends and share repurchases over
the long term. The key elements of the new capital allocation
policy include:
- Investing across core businesses at
suitable returns to drive organic growth
- Pursuing strategic opportunities,
including mergers and acquisitions, that are consistent with the
company’s strategy, meet its return requirements, are accretive and
drive long-term growth
- Maintaining a strong balance sheet and
financial flexibility with a commitment to solid investment grade
credit ratings to govern future capital allocation.
- Returning cash to shareholders by
targeting a 30-35 percent long-term dividend payout ratio and a new
$3 billion share repurchase authorization through the end of fiscal
2016.
In addition, the board of directors of Walgreen Co. on Aug. 5,
2014 increased the quarterly dividend to 33.75 cents per share, a
7.1 percent increase over the year-ago quarterly dividend of 31.5
cents per share. The increased dividend is payable Sept. 12, 2014,
to shareholders of record Aug. 21, 2014, and raises the annual rate
from $1.26 per share to $1.35 per share. This marks the 39th
consecutive year Walgreens has raised its dividend.
“This is a pivotal moment in Walgreens history as we venture
ahead from the best corners in America to the four corners of the
world,” said Wasson. “In a changing global marketplace with new
opportunities and challenges, we will serve our communities, our
country and the world in ways we could never have imagined even a
few years ago.”
Walgreens financial advisors in connection with the second step
of the Alliance Boots transaction are Goldman, Sachs & Co. and
Lazard, and its legal advisors are Wachtell, Lipton, Rosen &
Katz, and Allen Overy.
Walgreens will hold a one-hour conference call to discuss the
Alliance Boots transaction and related matters beginning at 8 a.m.
Eastern time today, Aug. 6. 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 11:30 a.m. Eastern time,
Aug. 6 through Aug. 13, by calling 855-859-2056 within the U.S. and
Canada, or 404-537-3406 outside the U.S. and Canada, using replay
code 82609242.
* Note: Figures include Alliance Boots associates and joint
ventures
About Walgreens
As the nation's largest drugstore chain with fiscal 2013 sales
of $72 billion, Walgreens (www.walgreens.com) vision is to be the
first choice in health and daily living for everyone in America,
and beyond. Each day, in communities across America, more than 8
million customers interact with Walgreens using the most
convenient, multichannel access to consumer goods and services and
trusted, cost-effective pharmacy, health and wellness services and
advice. Walgreens scope of pharmacy services includes retail,
specialty, infusion, medical facility and mail service, along with
online and mobile 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 8,192 drugstores in all 50
states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands. Walgreens digital business includes Walgreens.com,
drugstore.com, Beauty.com, SkinStore.com and VisionDirect.com. Take
Care Health Systems is a Walgreens subsidiary that manages more
than 400 in-store convenient care clinics throughout the
country.
Cautionary Note Regarding Forward-Looking Statements. Statements
in this release that are not historical are forward-looking
statements for purposes of applicable securities laws. Words such
as “expect,” “likely,” “outlook,” “forecast,” “would,” “could,”
“should,” “can,” “will,” “project,” “intend,” “plan,” “goal,”
“target,” “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: the risks that one
or more closing conditions to the transactions may not be satisfied
or waived, on a timely basis or otherwise, including that a
governmental entity may prohibit, delay or refuse to grant approval
for the consummation of the transactions or that the required
approvals by the Company’s shareholders may not be obtained; the
risk of a material adverse change that the Company or Alliance
Boots or either of their respective businesses may suffer as a
result of disruption or uncertainty relating to the transactions;
risks associated with changes in economic and business conditions
generally or in the markets in which we or Alliance Boots
participate; risks associated with new business areas and
activities; risks associated with acquisitions, joint ventures,
strategic investments and divestitures, including those associated
with cross-border transactions; risks associated with governance
and control matters; risks associated with the Company’s ability to
timely arrange for and consummate financing for the contemplated
transactions on acceptable terms; risks relating to the Company and
Alliance Boots’ ability to successfully integrate our operations,
systems and employees, realize anticipated synergies and achieve
anticipated financial results, tax and operating results in the
amounts and at the times anticipated; the potential impact of
announcement of the transactions or consummation of the
transactions on relationships and terms, including with employees,
vendors, payers, customers and competitors; the amounts and timing
of costs and charges associated with our optimization initiatives;
our ability to realize expected savings and benefits in the amounts
and at the times anticipated; changes in management’s assumptions;
the risks associated with transitions in supply arrangements; risks
that legal proceedings may be initiated related to the
transactions; the amount of costs, fees, expenses and charges
incurred by Walgreens and Alliance Boots related to the
transactions; the ability to retain key personnel; changes in
financial markets, interest rates and foreign currency exchange
rates; the risks associated with international business operations;
the risk of unexpected costs, liabilities or delays; changes in
network participation and reimbursement and other terms; risks
associated with the operation and growth of our customer loyalty
program; risks associated with outcomes of legal and regulatory
matters, and changes in legislation, regulations or interpretations
thereof; and other factors described in Item 1A (Risk Factors) of
our most recent Form 10-K and Form 10-Q, each of which is
incorporated herein by reference, and in other documents that we
file or furnish with the SEC. 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 release, whether
as a result of new information, future events, changes in
assumptions or otherwise.
Non-GAAP Financial Measures. This press release contains certain
non-GAAP financial measures, as defined under SEC rules, that are
not calculated or presented in accordance with generally accepted
accounting principles in the United States (GAAP). These non-GAAP
financial measures are presented supplementally because management
evaluates the company’s financial results both including and
excluding the adjusted items and believes that the non-GAAP
financial measures presented provide additional perspective and
insights when analyzing the core operating performance of the
Company’s business from period to period and trends in the
company’s historical operating results. The company does not
provide a non-GAAP reconciliation for non-GAAP estimates on a
forward-looking basis where it is unable to provide a meaningful or
accurate calculation or estimation of reconciling items and the
information is not available without unreasonable effort. The
supplemental non-GAAP financial measures presented should not be
considered superior to, as a substitute for or as an alternative
to, and should be considered in conjunction with, our financial
measures determined in accordance with GAAP.
Important Information for Investors and Shareholders
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended. In connection with the proposed transactions between
Walgreens and Alliance Boots, Walgreens Boots Alliance will file
with the Securities and Exchange Commission (SEC) a registration
statement on Form S-4 that will include a proxy statement of
Walgreens that also constitutes a prospectus of Walgreens Boots
Alliance. After the registration statement has been declared
effective by the SEC, the definitive proxy statement/prospectus
will be delivered to shareholders of Walgreens. INVESTORS AND
SECURITY HOLDERS OF WALGREENS ARE URGED TO READ THE DEFINITIVE
PROXY STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND
SUPPLEMENTS THERETO) AND OTHER DOCUMENTS RELATING TO THE
TRANSACTIONS THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR
ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTIONS.
Investors and security holders will be able to obtain free copies
of the registration statement and the definitive proxy
statement/prospectus (when available) and other documents filed
with the SEC by Walgreens or Walgreens Boots Alliance through the
website maintained by the SEC at www.sec.gov. Copies of the
documents filed with the SEC by Walgreens or Walgreens Boots
Alliance will be available free of charge on Walgreens’ internet
website at www.walgreens.com under the heading “Investor
Relations” and then under the heading “SEC Filings” or by
contacting Walgreen’s Investor Relations Department at (847)
315-2361.
Participants in the Solicitation
Walgreens, Alliance Boots, Walgreens Boots Alliance and their
respective directors, executive officers and certain other members
of management and employees may be deemed to be participants in the
solicitation of proxies from the holders of Walgreens common stock
in respect of the proposed transactions. Information regarding the
persons who are, under the rules of the SEC, participants in the
solicitation of proxies in favor of the proposed transactions will
be set forth in the proxy statement/prospectus when it is filed
with the SEC. You can find information about Walgreens’ directors
and executive officers in Walgreens’ Annual Report on Form 10-K for
the year ended August 31, 2013 and definitive proxy statement filed
with the SEC on November 25, 2013. You can obtain free copies of
these documents, which are filed with the SEC, from Walgreens using
the contact information above.
Photos/Multimedia Gallery Available:
http://www.businesswire.com/multimedia/home/20140806005191/en/
WalgreensMichael Polzin,
847-315-2920http://news.walgreens.com@WalgreensNewsfacebook.com/Walgreens
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