Breaking News Bar
updated: 3/19/2013 4:12 PM

Walgreen buys wholesaler stake, 2Q profit climbs

hello
Success - Article sent! close
  • Deerfield-based Walgreen's fiscal second-quarter earnings climbed 11 percent, helped by contributions from European health and beauty retailer Alliance Boots, a business sale gain, and its new contract with Express Scripts Holding Co.

      Deerfield-based Walgreen's fiscal second-quarter earnings climbed 11 percent, helped by contributions from European health and beauty retailer Alliance Boots, a business sale gain, and its new contract with Express Scripts Holding Co.
    Associated Press

 
Associated Press

Deerfield-based drugstore chain Walgreen Co. is buying an ownership stake in another big company, this time in a deal that could increase its clout when negotiating prices with drugmakers.

The company said Tuesday that it is expanding its supply agreement with AmerisourceBergen Corp. through a 10-year deal that gives it and European health and beauty retailer Alliance Boots a minority stake in the pharmaceutical wholesaler. Walgreen has a stake in Alliance Boots.

Order Reprint Print Article
 
Interested in reusing this article?
Custom reprints are a powerful and strategic way to share your article with customers, employees and prospects.
The YGS Group provides digital and printed reprint services for Daily Herald. Complete the form to the right and a reprint consultant will contact you to discuss how you can reuse this article.
Need more information about reprints? Visit our Reprints Section for more details.

Contact information ( * required )

Success - request sent close

The latest announcement came the same day Walgreen said its fiscal second-quarter earnings climbed 11 percent, helped by contributions from Alliance Boots, a business sale gain, and its new contract with Express Scripts Holding Co.

In the AmerisourceBergen deal, Walgreen and Alliance Boots receive the right to buy up to 7 percent of AmerisourceBergen's shares and warrants to purchase an additional 16 percent. Walgreen's acquisition of a stake in Alliance Boots last year launched an international expansion for an initial investment of nearly $7 billion. The largest U.S. drugstore chain will wind up owning the entire AmerisourceBergen stake if it exercises its option to buy the rest of Alliance Boots in 2015.

AmerisourceBergen, in return, will supply Walgreen with both branded and generic drugs for its drugstores and mail order and specialty pharmacy businesses. Walgreen runs more than 8,000 stores.

The companies will be able to promise generic drugmakers a lot of business in return for a better price, said Jeff Jonas, who follows the industry as a portfolio manager with the asset management firm GAMCO Investors. But he said the companies won't have as much leverage when negotiating prices for branded drugs, which are protected by patents and less sensitive to price competition.

He also said consumers may not see a benefit from any lower prices that come with the extra clout.

"I really think the companies would keep any savings for themselves," he said.

Walgreen said it expects modest gains from the deal, but did not offer specifics. AmerisourceBergen expects the deal to add $28 billion in revenue and about 20 cents per share in earnings to its fiscal 2014 performance, not counting costs tied to the agreement.

In contrast, another pharmaceutical wholesaler, Cardinal Health Inc., will lose one of its largest customers when Walgreen and AmerisourceBergen start their new agreement Sept. 1. Cardinal said Walgreen sales generated about 21 percent of its revenue in fiscal 2012.

Shares of Walgreen rose 4.6 percent, or $1.97, to $44.40 in midday trading, while AmerisourceBergen jumped 6 percent, or $2.89, to $51.19 in heavy trading. Meanwhile, Cardinal shares sank 6.7 percent, or $3.10, to $43.01.

For the fiscal second quarter, Walgreen reported net income of $756 million, or 79 cents per share, in the quarter that ended Feb. 28. That compares to earnings of $683 million, or 78 cents per share, in last year's quarter, when it had fewer shares outstanding.

Excluding one-time items like acquisition-related costs, adjusted earnings totaled 96 cents per share.

Revenue came in flat at $18.65 billion.

Analysts forecast, on average, earnings of 93 cents per share on $18.74 billion in revenue, according to FactSet.

Alliance Boots contributed $85 million to Walgreen's earnings. The drugstore chain also booked a $20 million gain from an incentive payment related to the 2011 sale of its pharmacy benefit manager, Walgreens Health Initiatives, Inc.

Walgreen took a hit in last year's quarter from a split with Express Scripts, the nation's largest pharmacy benefits manager. Walgreen fills prescriptions for Express Scripts, but the companies had let a contract between them expire in December 2011, and their new agreement didn't start until last September.

The split meant many Express Scripts customers migrated to new drugstores for their prescriptions at the start of 2012.

Walgreen operated 8,072 drugstores as of Feb. 28, or 231 more than it had a year ago. The company moved its earnings report up a week from its scheduled date.

Share this page
Comments ()
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the X in the upper right corner of the comment box. To find our more, read our FAQ.