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The morning after announcing its $17.2 billion agreement to acquire Rite Aid, Walgreens Boots Alliance (WBA) didn’t have much to say about the deal.
Stefano Pessina
In a conference call on WBA’s fiscal 2015 results, company executives cited the synergies of scale and broader U.S. market coverage that the addition of Rite Aid promises, but details weren’t very forthcoming — in large part, of course, because this is still a transaction in process.
“This is an exciting time for us. Not only are we announcing our first full-year results as a fully combined company, but also we are announcing the acquisition of Rite Aid — an acquisition that will significantly accelerate our plans to expand our presence in the U.S.,” WBA executive chairman and CEO Stefano Pessina said in the call. “With this acquisition, we are accelerating the long-term objective that we knew we needed to address: to strengthen our presence and coverage nationally across the U.S.”
Pessina said the deal reached with Rite Aid “reflects what we believe to be very fair terms,” which in turn will enable WBA to “unlock the real value of the transaction.”
“The addition of Rite Aid will accelerate our strategy by completing our network, providing a larger and more comprehensive portfolio with which we can deploy our knowledge and skill in creating a stronger platform for the development of our brand presence and the future of our business,” he explained.
George Fairweather, WBA’s global CFO, noted that the company has carefully studied what it will take to join Walgreens and Rite Aid and what benefits WBA — more specifically, its Retail Pharmacy USA division — can expect to realize.
“We have done significant analysis on how we can bring the two companies together, including antitrust analysis, and we will work closely together with regulators to bring the transaction to completion as soon as possible,” Fairweather told analysts in the call. “Clearly, we are very confident in taking everything into account that the transaction will be suitably accretive for us. We have been prudent in our assumptions for the business and have been realistic about our expectations for the market in which we operate.”
He said that WBA has identified over $1 billion in gross synergies from combining Walgreens and Rite Aid, and WBA will start working to capture those after the closing of the transaction, expected in the second half of 2016.
“But we must recognize that while some of these are easy to identify, others will require investment and take time to deliver,” Fairweather added.
When asked by analysts where the synergies would come, Fairweather cited such areas as procurement, IT and other cost savings. “These synergies we will access in a structured way, much as we have done in the Walgreens-Alliance Boots transaction,” he said.
Despite alluding to benefits of scale brought by purchasing Rite Aid, Pessina stressed to one analyst that the deal wasn’t made to boost WBA’s leverage with PBMs and payers.
“We have not done this to increase our negotiating power with payers or PBMs. We have done this because we can extract a lot of synergies, rationalizing the combined company,” he said.
Pessina also declined to disclose to one analyst the number of stores that WBA projects it will need to divest for the Rite Aid transaction to gain regulatory approval.
Walgreens president Alex Gourlay, who’s also an executive VP at WBA, noted that the addition of Rite Aid will help the company to “create a market that is more affordable and more accessible to everyone” and that also aligns with the changing pharmacy and health care environment in the U.S.
To that end, Gourlay explained, WBA aims to optimize its store base and health care offering by taking the best ideas from Walgreens and Alliance Boots and learning what Rite Aid’s successful Wellness Store format and other health care businesses can bring to the table.
“We have the opportunity to put all of that together and see how we can improve performance in all of our network across America and provide better front-end performance and support a better-quality pharmacy experience,” he said.
