Despite several recent headwinds,
) has been successful in maintaining its nonstop shopping spree.
Following a gigantic $6.7 billion merger with Alliance Boots, this
leading retail pharmacy chain completed its acquisition of a
mid-South US-based regional drugstore chain from Stephen L.
LaFrance Holdings Inc. for $438 million.
The string of mergers and acquisitions signifies the company's
reliance on the inherent quality of each asset and superior
demographics, which it believes would drive solid return on
investments going forward.
Earlier in July, Walgreen entered into a purchase agreement to
acquire this US drug pharmacy chain in order to get a hold of its
144 drug stores located in Arkansas, Kansas, Mississippi, Missouri,
New Jersey, Oklahoma and Tennessee. These stores currently operate
under brands like USA Drug, Super D Drug, May's Drug, Med-X and
Drug Warehouse stores. Further, the acquisition also includes
corporate offices and one distribution center located in Pine
Walgreen believes that this acquisition will help expand its
business in several key regions of the nation but rules out any
material impact on its fiscal 2012 earnings per share ('EPS'). It
is noteworthy that the regional drugstore chain delivered sales of
$825 million in fiscal 2011.
To offset the impact of the
) contract loss, Walgreen is currently concentrating on several
strategic steps to drive growth. In August this year, the company
entered into a strategic partnership with a global international
pharmacy-led health and beauty group Alliance Boots GmbH, in which
it acquired a 45% stake for $6.7 billion. The company also has the
option to attain 100% ownership over the next three years for an
approximate value of $9.5 billion in cash and stock.
In May, Walgreen completed the acquisition of certain assets of
) community specialty pharmacies and centralized specialty and mail
service pharmacy businesses that include a national network with 30
locations in 16 states across the US and the District of Columbia,
primarily serving HIV, oncology and transplant patients.
At the same time, Walgreen also acquired certain assets of
BioScrip's traditional mail service pharmacy business that
dispenses prescriptions for drugstore.com, which was acquired by
Walgreen in June 2011.
We are optimistic about the latest development in which,
Walgreen, after a long waiting period of 7 months, has finally
reached a settlement with Express Scripts. The Express Scripts
contract loss was a blow to Walgreen, as 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 been dismal since the beginning of 2012.
We expect these new ventures to boost Walgreen's growth going
forward. Nevertheless, it remains to be seen if these measures can
neutralize the headwinds related to the Express Scripts
However, we cannot dismiss the chances of failure, as only time
can tell whether the amounts invested in these acquisitions and
mergers were fruitful. Walgreen has also been affected over the
past few quarters by high unemployment levels and lower
Currently, Walgreen retains a Zacks #3 Rank (short-term Hold
rating). We have a Neutral recommendation on the stock over the
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