Walgreens to complete purchase of Alliance Boots in £5bn deal

Last evenings announcement by Walgreens that they have decided remain in the US and are expected to announce shortly their decision to complete their acquisition of Alliance Boots will impact your WBAD dealings.

Their decision not to move their headquarters to the EU (tax inversion) means the time-pressure is off re acquisition, meaning that they can avail of the 6 months acquisition-window beginning in February 2015.

Remaining in the US means that Walgreens-Boots will pay corporation tax on US earnings @ US rates of 36%, probably making them subject to pressure from some major shareholders.

It also means that WBAD will have the buying muscle of 3xAB turnover….

In other words, some new dots to connect in your dealings with WBAD…

Watch this space

Walgreens-Boots, where next, when?

Walgreen Co, the largest U.S. drugstore operator, withdrew its profit and revenue forecasts for 2016 on Tuesday, saying it had yet to work out several aspects of its planned acquisition of European drug retailer Alliance Boots Holdings Ltd.

Walgreens, which bought 45% of Alliance Boots in 2012, and has an option to buy all of the Switzerland-based company in 2015, said it would update investors about the proposed purchase of the rest of the Europe's largest pharmacy chain owner and issue a new forecast by late July or early August. Combined synergies continue to generate savings albeit slightly lower than forecast, hence the withdrawal of the 2016 forecasts.

The real issue is the probability that Walgreens will respond to pressure from some shareholders to do a so-called "tax inversion" deal with Alliance Boots that would shift Illinois-based Walgreen's tax domicile overseas and reduce its tax bill. Their US tax rate is 36% and this would reduce to 21% if they transferred to Switzerland.

A possibility has to be consideration of availing of Ireland's tax rate of 12.5%.

However, to quote David McWilliams, the global ground has shifted and countries such as the US will not tolerate the wholesale looting of its corporate tax base and the countries that facilitate this behaviour.

This could mean that globally harmonized tax rates are on the way, but may take several years to implement.

Meanwhile, companies in Walgreens' position may choose to make a change sooner, rather than later.

For this reason, suppliers might usefully anticipate the possibility of Walgreens completing their acquisition of Boots earlier than the 2015 deadline... 

Time for NAMs to complete some what-ifs on a 2014 move, and act accordingly?

Walgreens urged to leave US to gain tax benefit - a step too far for the US authorities?

According to the Financial Times, Walgreens has come under pressure from an influential group of its shareholders who want the US pharmacy chain to consider relocating to Europe, in what would be one of the largest tax inversions ever attempted.

At a private meeting in Paris on Friday, investors owning close to 5 per cent of Walgreens’ shares lobbied the company’s management to use its $16bn takeover of Swiss-based Alliance Boots to re-domicile its tax base.

Whilst such a move would be attractive to shareholders, coupled with similar cases and especially the focus on taxation of Google, Amazon and Apple, given the state of the US economy, it seems likely that the US government will try to block the move.

In doing so, it not only means major distraction for Walgreens-Boots management in the short term, with inevitable impact on supplier-retailer implications at street level, it also provides a way to make the question of merger company taxation a centre-stage issue globally…

In other words, the US government could bring forward the issue of taxing US companies on their global earnings, challenge the viability of corporation tax vehicles such as the so-called double-Irish tax arrangements in Ireland, and intensify the pressure by the French/EU governments to eliminate low taxation rates in member countries…

However, for suppliers to Walgreens-Boots, the real tail-sting was another agenda-item tabled at the same meeting whereby the investor group told Messrs Wasson and Pessina that they wanted to see a greater role for Boots’ management team in running the merged business….

The real Boots agenda emerges?
…and given that Boots management have more global experience than their Walgreens colleagues, this has to mean W-B flexing their international muscles in term of optimising prices and terms disharmonies, at least…

Watch this space...

Friday What-if: Why CVS Is Quitting Tobacco and the UK/EU implications

CVS Caremark Corp is a $123bn American retailer and health care company that has announced it will stop selling tobacco in October 2014, and focus on healthcare provision.

Respondents to Andrew Sullivan's blog add some interesting insights:

• CVS own Caremark RX, a huge pharmacy benefits manager (PBM), managing the prescription drug components of Medicare and other public and private insurance programs
• Pharmacy chains have been providing the care that more traditional medical practices cannot, with CVS clinics rising from 800 to 1,500 by 2015...
• CVS has between 30 and 40 partnerships with healthcare systems across the US
• CVS shares the retail-clinic space with Walgreens, Target and Walmart, and the CVS tobacco move could cause these three players to make similar moves re. tobacco, alcohol and even shotguns..
• Junk food and drinks have to come under the same spotlight as the healthcare market expands...
• The $2bn lost in tobacco sales will need replacing...

So, apart from some fundamental changes in US retailing, the key issue for UK/EU NAMs has to be the impact of McKesson and Walgreens expansion into Europe on CVS.

What-if CVS decide to copy the McKesson move and acquire some healthcare wholesalers, say Phoenix for starters?

To give you some idea of the scale of the issue and the money involved, some 2012 sales figures:

CVS Caremark                    €90.5bn
McKesson-Celesio              €115.3bn
Alliance Boots-Walgreens    €80.7bn
A.S. Watson                       €14.2bn

Apart from pushing Alliance Boots-Walgreens down into third place, with the right acquisitions, CVS could even take the No.1 slot...

Watch this space... 

McKesson says Celesio takeover offer has failed

Last night’s news by McKesson that their 3 month offer to purchase Celesio had failed to secure the 75% of the shares they deemed necessary to complete the purchase raises several issues for suppliers, retailers and wholesalers…

Apart from the disruption and uncertainty of the past three months and its impact on staff, possibly resulting in some of the good guys leaving, and key suppliers reverting to short term strategic mode, Celesio’s profile as a takeover prospect has invariable attracted the attention of other players such as McKesson’s closest U.S. rivals AmerisourceBergen and Cardinal Health, which between them account for 95% of the U.S. market, are, like McKesson, all looking to grow abroad to gain purchasing power with drug makers.
At a market capitalisation of €4.11bn, Celesio is within the reach of each of the companies.

Celesio Chief Executive Marion Helmes has said that an alliance or tie-up with a U.S. partner could help win steeper discounts, mainly for the generic drugs it buys but also for non-prescription medication and skin care products.

Celesio, owner of Britain's Lloyds pharmacy chain, is suffering from a price war that has all but erased its profits from the crowded German drugs wholesale market. Healthcare budget cuts across Europe, its main market, add to its woes.

In response, CEO Helmes is centralising procurement to cut costs, as well as widening and standardising the offering of its pharmacies across Europe under the Lloyds brand.

The mooted offer would value Celesio including its debt at close to 9.9 times expected earnings before interest, taxes, depreciation and amortisation (EBITDA) for this year, roughly in line with the 9.8 multiple its U.S. suitor is trading at. That compares with a multiple of about 11 times EBIDTA that U.S. drugstore chain Walgreens paid for a stake in Alliance Boots last year.

And speaking of which, Celesio wholesaling would add to the combined muscle of Walgreen and Alliance Boots, thereby frustrating the obvious appeal to A.S. Watson in completing a global structure that might help it keep pace with Walgreen Boots globally…

Meanwhile, back to the short term initiatives for NAMs…