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Walgreens and Alliance Boots Announce Strategic, Long-Term Relationship with AmerisourceBergen

Tue, 03/19/2013 - 7:58am

Walgreen Co., the largest retail drugstore chain in the United States, and Alliance Boots GmbH, a leading international pharmacy-led health and beauty group, today announced that they have entered into an innovative long-term partnership with AmerisourceBergen, one of North America’s largest pharmaceutical services companies.

This relationship will enable Walgreens, Alliance Boots and AmerisourceBergen to benefit from greater scale and global opportunities and work together on programs to improve service levels and efficiencies, while reducing costs and increasing patient access to pharmaceuticals. Together these three companies will help address global health care challenges by making it easier for manufacturers to bring products to market; increasing accessibility to the benefits of global sourcing and best practices for community pharmacies; and providing patients with better access to health care. The collaboration will also generate opportunities to attract partners in new markets and prospects in existing markets around the globe.

“Today’s announcement marks another step forward in establishing an unprecedented and efficient global pharmacy-led, health and wellbeing network, and achieving our vision of becoming the first choice in health and daily living for everyone in America and beyond,” said Gregory Wasson, President and Chief Executive Officer of Walgreens. “We are excited to be expanding our existing relationship with AmerisourceBergen to a 10-year strategic long-term contract, representing another transformational step in the pharmaceutical supply chain. We believe this relationship will create a wide range of opportunities and innovations in the rapidly changing U.S. and global health care environment that we expect will benefit all of our stakeholders.”

“This agreement with AmerisourceBergen, which we consider to be the best-positioned pharmaceutical wholesaler in North America, is a promising development for Walgreens and Alliance Boots following the formation of our strategic partnership last year,” said Stefano Pessina, Executive Chairman of Alliance Boots. “We strongly believe that our new partnership with AmerisourceBergen will deliver long-term shareholder value by creating an unmatched network of companies that is well positioned to anticipate increasing market needs and expectations across the world. Together we will bring tailored solutions to business partners, including manufacturers and pharmacists, as well as to patients and consumers.”

“AmerisourceBergen is very excited to be joining in this unique global relationship with two of the undisputed leaders in health care,” said Steven Collis, President and Chief Executive Officer of AmerisourceBergen. “As we all recognize the imperatives of health reform not only here in the U.S. but also globally, we have entered into a unique opportunity to unlock value in the pharmaceutical supply chain by collaborating to leverage all of our proven strengths. This new relationship will significantly strengthen and grow our core business and increase our ability to deliver innovative solutions to our customers, and long-term benefits to all of our stakeholders. Importantly, these agreements not only expand our U.S. business, but also provide opportunities to meaningfully grow our specialty and manufacturer services businesses internationally.”

Today’s announcement specifically covers:

Branded and Generic Pharmaceutical Distribution Contract: Walgreens and AmerisourceBergen have agreed to expand their existing relationship beyond the specialty items currently distributed by AmerisourceBergen to a 10-year comprehensive primary distribution agreement for branded and generic pharmaceutical products. The agreement will result in the distribution by AmerisourceBergen of the branded pharmaceutical products that Walgreens has historically sourced from distributors and suppliers, effective Sept. 1, 2013. Over time, beginning in calendar year 2014, this increasingly will include generic pharmaceutical products that Walgreens historically has self-distributed. In addition, this agreement is expected to provide substantial operational benefits for Walgreens, including an enhanced supply chain with daily deliveries. The terms of the contract are market-based, and Walgreens expects modest accretion from the agreement for fiscal year 2014, excluding one-time transaction-related costs.

Global Supply Chain Opportunities: AmerisourceBergen will access generics and related pharmaceutical products through the recently established Walgreens and Alliance Boots joint venture, Walgreens Boots Alliance Development GmbH, a global platform that is designed to make it easier for manufacturers to bring products to market, improve access to pharmaceuticals for health care providers worldwide, and yield compelling new offerings to community pharmacies and others. Walgreens will benefit from AmerisourceBergen’s expertise in its specialty and manufacturer services businesses, as well as its wholesale distribution to health systems across the U.S. Alliance Boots strong international expertise in pharmaceutical wholesaling and distribution also opens avenues for collaboration on new projects and services.

Equity Position: To align interests and strengthen the long-term relationship, Walgreens and Alliance Boots together have been granted the right to purchase a minority equity position in AmerisourceBergen, beginning with the right, but not the obligation, to purchase up to 7 percent of the fully diluted equity of AmerisourceBergen in the open market, with associated board representation as described below. In addition, AmerisourceBergen has granted to Walgreens and Alliance Boots equity warrants exercisable for 16 percent in the aggregate of the fully diluted equity of AmerisourceBergen. The first tranche of warrants, representing 8 percent of the fully diluted equity of AmerisourceBergen, has a strike price of $51.50 and will be exercisable for a six-month period beginning in March 2016. The second tranche of warrants, also representing 8 percent of the fully diluted equity of AmerisourceBergen, has a strike price of $52.50 and will be exercisable for a six-month period beginning in March 2017. The warrants will be allocated equally among Walgreens and Alliance Boots. Walgreens and Alliance Boots have agreed to customary transfer restrictions on their equity stake, and have also agreed not to acquire additional equity of AmerisourceBergen under the terms of a standstill agreement, subject to the terms and conditions of such agreement, including certain pre-emption rights and permitted exceptions.

A Walgreens executive will be appointed to AmerisourceBergen’s board upon Walgreens and Alliance Boots together acquiring a 5 percent equity stake, and an Alliance Boots executive will be appointed upon exercise in full of the first warrants. These new board seats will add to AmerisourceBergen’s current nine-member board.

 

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