) recently announced that it has entered into a strategic
) and Alliance Boots GmbH.
The agreement includes a 10-year pharmaceutical distribution
contract with Walgreens and access to generic drugs and related
pharmaceutical products through the Walgreens Boots Alliance
Development joint venture.
In return, both Walgreens and Alliance Boots have been granted
rights to jointly purchase a minority equity position in
Walgreens and Alliance Boots can purchase up to 7% stake in
AmerisourceBergen. Additionally, AmerisourceBergen has granted
warrants to both the companies for a 16% stake. AmerisourceBergen
will allocate the warrants equally among Walgreens and Alliance
The first tranche of warrants with a strike price of $51.50
represents an 8% stake, which can be exercised in a six-month
period beginning Mar 2016. The second tranche of warrants
represents the remaining 8% stake with a strike price of $52.50
and will be exercisable for a six-month period beginning Mar
The agreement is intended to streamline the distribution of
pharmaceuticals to Walgreens' stores along with leveraging global
supply chain efficiencies. The broader goal is to maintain an
efficient healthcare system by improving patient access to
The agreement also allows Walgreens to appoint one director to
AmerisourceBergen's board as and when Walgreens and Alliance
Boots together acquire a 5% equity stake. Walgreens can also
appoint a second director upon exercising the first tranche of
Meanwhile, both Walgreens and Alliance Boots have agreed to
customary transfer restrictions on their equity stake. Under the
terms of a standstill agreement, both the companies will not try
to acquire additional equity stake in AmerisourceBergen.
The agreement is effective Sep 1, 2013 and is expected to be
accretive in fiscal 2014 with an incremental contribution of $28
billion to the top line and approximately 20 cents per share to
the bottom line.
AmerisourceBergen expects incremental brand revenues of at
least $2 billion in Sep 2013. Consequently, AmerisourceBergen
revised its guidance for fiscal 2013. The company now expects
revenues to increase 8% - 11% in fiscal 2013, up from the
previous guidance of 6% - 9% increase.
We note that Walgreens existing pharmaceutical distribution
) ends on Aug 2013 and the contract will not be renewed further.
Walgreens is one of Cardinal Health's two largest customers,
generating approximately 21% of revenue in fiscal 2012.
Hence, we believe the agreement will further augment ABC's
strong distribution network paving the way for incremental growth
as Walgreens is well positioned in retail pharmacy business.
Competition in the pharmaceutical distribution market remains
tough with players like
AmerisourceBergen carries a Zacks Rank #2 (Buy).
AMERISOURCEBRGN (ABC): Free Stock Analysis
CARDINAL HEALTH (CAH): Free Stock Analysis
MCKESSON CORP (MCK): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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