Shares of Walgreen Co. fell 14.3 percent Wednesday as investors were disappointed that the retailer will remain based in the U.S. following its $5.29 billion acquisition of the remainder of Alliance Boots GmbH, a move that also had the company lowering guidance for fiscal year 2016.
Walgreen shares on Wednesday closed at $59.21 in trading on the New York Stock Exchange.
Exercising its option to acquire the 55 percent stake in Alliance Boots it didn’t already own was expected back in May. The deal, expected to close in the first quarter of 2015, is a cash and stock transaction that involves 3.13 billion pounds, or $5.26 billion, in cash and 144.3 million shares of Walgreen common stock. The company initially acquired a 45 percent equity stake in Alliance Boots in a cash-and-stock deal — $4 billion cash and 83.4 million shares — valued at $6.7 billion in fall 2012.
The planned transaction, which will create a global pharmacy-led retailer with more than 11,000 stores in 10 countries, as well as establish the world’s largest pharmaceutical wholesale and distribution network, is still subject to shareholder and regulatory approvals.
Under the new structure, the company will be renamed Walgreens Boots Alliance. Greg Wasson will be president and chief executive officer of the combined entity, positions he currently holds for Walgreens. Stefano Pessina, executive chairman of Boots, will become executive vice chairman of the combined entity responsible for strategy and M&A, reporting to Wasson. He will also be chairman of a new strategy committee of the company’s board. Jim Skinner will serve as non-executive chairman of the combined firm.
The new holding company for the combined entity will be headquartered in Chicago, with Walgreens operations based in Deerfield, Ill., and Boots remaining based in Nottingham in the U.K.
Some shareholders had been pushing for the company to move overseas to lower its tax rate, a move called tax inversion. For some time, there was a sense that Walgreens might be leaning toward the move even as critics complained it would be un-American. Some have suggested that federal tax rules should be changed to eliminate the incentives for an inversion and instead provide benefits to companies who remain based in the U.S. to help create more jobs for American citizens. The Obama administration is considering options to curtail relocations for taxation purposes.
In a conference call Wednesday to Wall Street analysts, Wasson said, “We consider benefits such as substantial financial advantages, competitive considerations and future M&A opportunities.” He explained that the risks included possible protracted litigation with the Internal Revenue Service that could go on for “three to 10 years,” potential for dual taxation in the intervening years, and consumer backlash and political ramifications.
Walgreens’ official statement regarding its decision cited “ongoing public reaction to a potential inversion and Walgreens unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs.”
Connected to the merger, Walgreens is initiating a three-year plan that includes an acceleration of a $1 billion cost-reduction plan at the corporate, field and store levels to establish a more efficient global platform, and a capital allocation policy that includes pursuing strategic opportunities including mergers and acquisitions and a new $3 billion share repurchase program through the end of fiscal year 2016.
Walgreens’ guidance for fiscal 2016 calls for revenue of between $126 billion and $130 billion and adjusted earnings per share of $4.25 to $4.60.
Deutsche Bank Securities Inc. analyst George Hill, in early reaction to a Walgreens’ Boots update, said of the transaction that “at best [it] could be considered extremely disappointing and could lead to significant pressure on the shares.”
The adjusted EPS range is below Hill’s estimate of $4.98 and Wall Street’s consensus of $5.08, he noted, adding that the company’s updated guidance would imply fiscal 2016 adjusted operating earnings in the range of $7.3 billion to $7.8 billion. That’s below Hill’s current estimate of $8.2 billion and lower than Walgreens’ earlier guidance range of $9 billion to $9.5 billion.
“In short, we believe this guidance would imply an earnings erosion at the underlying business that we are at a loss to explain,” he said.
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye
“It’s passion that helps get anybody to a certain point and it’s what’s propelled me,” said Kith founder @ronniefieg, one of WWD’s 40 under 40: a group of industry notables who are changing the face of retail, fashion and beauty. Fieg, who opened a Manhattan flagship on October 7, began his career at age 13 as a stock boy and salesman for footwear chain David Z. “I think staying true to [my] beliefs, hard work and passion have gotten me to where [Kith] is today.” See the rest of the 40 at WWD.com. (📷: @vsteves) #wwd40
25-year-old @samweaving is about to break out this fall, starring in Netflix’s horror film “The Babysitter,” fittingly out today on Friday the 13th. That’s not the only place you’ll be seeing her, though — Weaving’s got a role Showtime’s “SMILF” and another alongside Frances McDormand and Woody Harrelson in “Three Billboards Outside Ebbing, Missouri.” Though she’s got a full plate at the moment, there’s one role she’s got her eye on: Marilyn Monroe. “I’m a little too young at the moment, but it’s on my bucket list,” the actress told WWD (📷: @dandoperalski) #wwdeye
BFF's Poppy Jamie and Suki Waterhouse celebrated the launch of their bag line Pop x Suki at Nordstrom last night. "The line is really about our friendship, and how we are so different but complement each other," said Waterhouse. 👯 (📷: Katie Jones) #wwdeye
After designing the new @louisvuitton and @bulgariofficial flagships and a @chanelofficial boutique opening in Japan, @petermarinoarchitect has another project on his plate: The Lobster Club. Located in the Seagram Building, it’s the famed architect’s first restaurant project in New York, serving up modern Japanese brasserie-style cuisine. Bronze hues, bespoke material detailing, blush and chartreuse tones and a heavy emphasis on Picasso can be seen throughout. Mark your calendars for Nov. 1 for the much-anticipated opening. (📷: @clint_spaulding) #wwdeye