Walgreens Boots Alliance take Rite Aid - another global step..

Yesterday’s bid for Rite Aid will obviously impact the US market, but UK and EU NAMs need to place this move in a global context in order to anticipate the impact at local level.

For those that need reminding, in a few short years, Stefano Pessina transformed a small family business into Alliance Boots, a European drug retailing and wholesaling powerhouse, through a series of takeovers. In 2007, he took the company private in an $18.5bn leveraged buyout with KKR & Co. At year-end, KKR still owned about 4.6% of Walgreens stock.. And this successful integration and revitalisation of an iconic UK brand, without missing a beat (in contrast with Kraft's acquisition of Cadbury...).

WBA-Rite Aid will result in a company with annual sales of £65bn and a Mkt Cap = £68bn.
Compare this with Tesco annual sales £69.7bn and £15bn Market Cap…
(apart from the additional scale of WBA, this Sales/Mkt Cap comparison indicates the degree of Tesco's fall from grace, and the need for H&B suppliers to re-balance their customer portfolios...)

Given that the WBA merger has been one of the private-equity firm’s best-ever deals, making it well over four times KKR’s initial investment, the private equity group will want to stay at the table...
In other words, KKR are unlikely to miss out on funding further deals proposed by Mr Pessina…  

In defending the bid, Walgreens and Rite Aid would be likely to argue to regulators that they compete not just with other traditional drugstore chains, but also with companies such as groceries and club stores.

Finally, according to the WSJ, Mr. Pessina hasn’t been shy about his desire to do big deals. “We can clearly see the need or the opportunity for horizontal and vertical consolidation in our industry”

Joining some of the obvious dots, we should assume that SP is still working to a global agenda, growing by acquisition, targeting anything in healthcare and beauty, but also competing with grocers and warehouse clubs, anywhere…with appropriate funding on tap via KKR and the stockmarket…

Watch this space…

NAM Implications:

• Scale? At $100bn sales, almost as big as Tesco global...!
• Synergies? $1bn savings in year one is just the start ...
• Negotiation? First agenda item has to be prices & terms disparities.
• Preventive action? Suppliers have six months to remove anomalies, while WBA are distracted by the inevitable government scrutiny.
• Amplify? Worth sharing with global colleagues for a co-ordinated approach?

New Walgreens Boots growth strategy - back-to-basics+ via Boots

Building on improved sourcing - scale economies - across the group, the Boots influence on Walgreens is being demonstrated via convenience, pharmacy modernisation and customer care. In the US, this merely represents the harvesting of low hanging fruit…

However, a key contribution will be Boots global vision applied to wholesale consolidation, with M&A a vital route to WBA global purchasing power. In the process, it is unlikely that the group will pass up many opportunities to expand its retail footprint via acquisition.

In other words, we are beginning to see the emergence of a fully global group aimed at selling any H&B goods and services that can be legally sold to consumers and retailers, with buying muscle to match…

It is vital that suppliers gear up to this new global reality, in terms of time, money and people.

When it comes to globalisation, McKesson-Celesio has the potential to go global, but is way behind Boots WBA vision.

The major grocery multiples are currently focused on protecting their national/UK interests, and are no longer acting globally.

This leaves WBA as the only global player in H&B. 

The group is being driven by the Boots culture in retailing, and Alliance Boots in wholesaling, implementing a global vision that has not missed a beat so far…

A diminishing window to get things right?
Suppliers need to prepare for the inevitability of full global coverage, and ensure that their prices and terms are fully synchronised, before WBA gets really serious about scale economising…

A Friday thought: Walgreens Boots Alliance = Boots Global?

Given that Alliance Boots = 1/3 WBA, it would seem that Boots is an important but unequal part of WBA.

However, the combination of AB’s global experience vs. Walgreens’ US-centricity, the fact that four of the five divisions of WBA are run by Boots management, and noting that the acting-CEO has a major 16% shareholding backing up his global vision, might cause us to conclude that we are witnessing the emergence of the only truly global H&B player in the world.

Moreover, a key objective has to be the use of Boots UK Ltd impressive results (ROCE: 26.1% and Net Margin BT: 8%), as a financial target for the £74bn group.

Besides, the more pragmatic among us might conclude that on balance, given these unprecedented times, it is probably better to have Mr. P operating inside, rather than outside the WBA tent…