) has priced its senior notes, the proceeds of which will be used
primarily to repay borrowings, costs and expenses related to the
acquisition of a 45% equity interest in Alliance Boots GmbH for an
aggregate purchase price of $6.7 billion.
The company is issuing the notes in five installments - $500
million of floating rate notes due 2014; $750 million of 1.0%
senior notes due 2015; $1.0 billion of 1.8% senior notes due 2017;
$1.2 billion of 3.1% notes due 2022and $500 million of 4.4% senior
notes due 2042. The issuance of these notes will close on September
Besides repayment of a loan related to this acquisition, the
company also intends to use the net proceeds of the offering for
general corporate purposes including its previously announced USA
Drug acquisition. On July 23, 2012, the company entered into an
unsecured 364-Day Bridge Term Loan Agreement with a borrowing limit
of up to $3.5 billion to fund a portion of the first phase of the
Alliance Boots acquisition.
Historically, Walgreen Co. has been using its cash balance to
make strategic acquisitions as well as rewarding its shareholders
through share repurchases and dividend payments. During the last
reported quarter, the company returned $371 million, including $195
million in dividends and $176 million through the share repurchase
The company also declared a 28.6% hike in its regular quarterly
dividend to $0.275 per share, in line with its long term dividend
payout ratio of 30-35%. It is encouraging to note that the company
has been paying dividends for more than 79 years and the recent
hike marks the 37
consecutive quarter of dividend increase for the company. We
believe that suitable acquisitions on the back of healthy cash
balance should drive its revenues going forward.
On August 6, 2012
Walgreen's acquired a 45% stake in global international
pharmacy-led health and beauty group Alliance Boots with the aim of
becoming the world's first pharmacy driven health and well-being
retailer with more than 11,000 stores in 12 countries. Walgreen's
also holds an option to acquire the remaining stake over the next
three years for an approximate value of $9.5 billion in cash and
Walgreen Co. expects the first step of this transaction to be
accretive to its earnings per share (EPS) by 23−27 cents in the
first year. The company also expects the synergies across joint
operations to be between $100 million and $150 million in the first
year and $1 billion by the end of 2016.
Walgreen's believes that this joint company will form a major
global network in pharmaceutical wholesale and distribution with
over 370 distribution centers catering to 170,000 pharmacies,
doctors, health centers and hospitals across 21 countries.
Furthermore, it will also be considered as the largest purchaser of
prescription medicines and many of the health and wellbeing
We are also encouraged with the settlement with
), which had dragged on for 7 months. The Express Scripts contract
loss was a blow to Walgreen's, since the earlier contract used to
contribute a significant part to its sales (12.6% of total
prescriptions filled in August 2011). As a result, the company's
results have disappointed since the beginning of 2012.
Walgreen Co. posted dismal sales results for the month of August
2012 and recorded a decline of 4.5% from the year-ago quarter,
mainly on account of the termination of the Express Scripts
contract in January 2012. However, the scenario is expected to
improve radically with the renewal of deal between the two
stalwarts (effective September 2012). Following the recent
agreement, we believe that Walgreen's is poised to compensate for
the losses incurred since the termination of the previous deal in
We have a Neutral recommendation on Walgreen Co. The stock
retains a Zacks # 3 Rank (Hold rating in the short term).
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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