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DEERFIELD, Ill. — Walgreen Co. and Alliance Boots have formed a long-term partnership with AmerisourceBergen Corp. that includes an expanded pharmaceutical distribution pact for Walgreens, global supply-chain opportunities with the Walgreens-Boots joint venture, and the right for the joint venture partners to buy an equity stake in AmerisourceBergen.
Under the first component of the deal announced Tuesday, the companies said Walgreens and AmerisourceBergen plan to broaden their current relationship beyond the specialty items distributed by AmerisourceBergen to a 10-year primary distribution agreement for branded and generic drugs.
Starting Sept. 1, AmerisourceBergen will begin distributing branded drugs that Walgreens has historically sourced from other distributors and suppliers. And then beginning in calendar year 2014, this distribution will increasingly include generic drugs that Walgreens has typically has self-distributed, the companies said.
Walgreens added that the distribution agreement stands to provide substantial operational benefits, including an enhanced supply chain with daily deliveries. The terms of the contract are market-based, and Walgreens said it expects modest accretion from the deal for fiscal 2014, excluding one-time transaction-related costs.
In the second component of the partnership agreement, AmerisourceBergen will access generics and related pharmaceuticals through the Walgreens and Alliance Boots joint venture, Walgreens Boots Alliance Development GmbH. Walgreens said it will benefit from AmerisourceBergen’s expertise in its specialty and manufacturer services businesses, as well as its wholesale distribution to health systems across the United States. Meanwhile, Alliance Boots brings strong international expertise in pharmaceutical wholesaling and distribution, which opens avenues for collaboration on new projects and services.
"Today’s announcement marks another step forward in establishing an unprecedented and efficient global pharmacy-led, health and well-being network, and achieving our vision of becoming the first choice in health and daily living for everyone in America and beyond," Greg Wasson, president and chief executive officer of Walgreens, said in a statement. "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."
And under the third component of the agreement, Walgreens and Alliance Boots together have been granted the right to purchase a minority ownership interest in AmerisourceBergen, beginning with the right to buy up to 7% of the fully diluted equity of AmerisourceBergen in the open market.
AmerisourceBergen also has granted Walgreens and Alliance Boots equity warrants exercisable for 16% 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 starting 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 starting 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 not to acquire additional equity of AmerisourceBergen under a standstill agreement.
Plans call for a Walgreens executive will be appointed to AmerisourceBergen’s board upon Walgreens and Alliance Boots together acquiring a 5% equity stake, and an Alliance Boots executive will be appointed upon exercise in full of the first warrants. The new board seats will add to AmerisourceBergen’s current nine-member board.
The equity investment by Walgreens and Alliance Boots is subject to the receipt of customary regulatory approvals.
"AmerisourceBergen is very excited to be joining in this unique global relationship with two of the undisputed leaders in health care," stated Steven Collis, president and CEO 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."
The companies said the partnership 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.
In addition, the companies said they will be better able to 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 partnership, too, will create opportunities to draw partners in new markets and prospects in existing markets around the world, they added.
"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," commented 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."
