Walgreens on Global Path, Buys Stake in Alliance Boots

Discussion
Jun 19, 2012

Can you imagine a future in which there is a Walgreens on every busy street corner location across the globe? That day may be closer than you think.

Walgreens, the largest pharmacy chain in the U.S., has announced a deal giving it a 45 percent stake in Alliance Boots, the biggest drugstore operator in Europe. The deal, valued at $6.7 billion in cash and stock, appears to be just the start, with Walgreens having the option of buying the rest of Boots over the next three years.

The combined companies will have over 11,000 stores in 12 different countries and the largest pharmaceutical wholesale and distribution network on the planet. Walgreens and Alliance Boots, which is owned by Kohlberg Kravis Roberts, sees significant "revenue synergies" that will come with the introduction of Alliance Boots products to Walgreens and Duane Reade stores in the U.S. The two companies also expect to share best practices in "pharmacy operations, health and wellness services and logistics."

The deal has been set up to give the management teams three years to integrate the companies.

"We are looking forward to working with Alliance Boots to leverage our combined strengths and provide an even broader range of innovative, cost-effective products and services to patients and customers across the healthcare landscape," said Gregory Wasson, president and CEO of Walgreens, in a statement. "Together we will be ideally positioned to expand our customer offerings in our existing markets and become the health and wellbeing partner of choice in emerging markets."

"The fit is natural. Walgreens consumer profile in the U.S. is similar to Boots in the U.K. in many ways: a trusted and much-loved pharmacy brand with a strong heritage," added Stefano Pessina, executive chairman of Alliance Boots. "Our pharmaceutical wholesale businesses will provide their logistics know-how to Walgreens and are well placed to be one of the growth engines of the new enterprise."

Discussion Questions: What is your reaction to the Walgreens/Alliance Boots deal? Is this the type of merger that tends to be successful? How will it affect the retail pharmacy market in the U.S. and Europe?

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15 Comments on "Walgreens on Global Path, Buys Stake in Alliance Boots"


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Dick Seesel
Guest
9 years 11 months ago

From my observation (at least outside of England), the retail pharmacy model in Europe is dominated by small independent retailers rather than big chains. There is certainly an opportunity to address this fragmentation with a more centralized operation — provided that consumers accept it, as they have embraced other chains like Monoprix and LIDL throughout Europe.

There is also the possibility that Walgreens can import Boots as a “flanking brand” in the US and apply some of its best practices to its Walgreens and Duane Reade stores.

David Biernbaum
Guest
9 years 11 months ago

This is one of the most important developments ever for a U.S. based chain drug store. The implications are almost too great for an instant analysis. Let’s just say this is a really big deal.

Matt Schmitt
Guest
9 years 11 months ago

Walgreens has chosen to be bold and to kickstart their global strategy with a big move, rather than taking the more common approach of slow and experimental organic growth adopted by most retailers.

Connecting with a well-established player allows Walgreens to avoid having to learn their way into other markets. And by each organization sharing their knowledge and systems, they may be able to further increase efficiencies and performance in existing operations, while working together on strategies to push into emerging markets.

W. Frank Dell II, CMC
Guest
9 years 11 months ago

This is an excellent move by Walgreens. Boots is both an excellent operator and offers an outstanding line of Private Label products. This investment will give Walgreens invaluable knowledge is operating a very successfully Private Label program, but also international experience.

Most American retailers have failed outside of Canada with their international expansion. Remember Walmart in Germany?

Gene Hoffman
Guest
Gene Hoffman
9 years 11 months ago

There have been other really “big deals” like this in the past, and not all have been preserved in entirety.

What is the real objective for this union? Does KKR want to take profits from selling Alliance Boots? Or is Walgreen itchy to grow globally? Or what?

If the objective of the Walgreen/Alliance Boots deal is to share the best practices of two strong company cultures — Walgreen and Boots — these two companies will face the usual tough challenges of integration. Already Alliance Boots states that “our pharmaceutical wholesale businesses will provide their logistics know-how to Walgreen and are well placed to be one of the growth engines of the new enterprise.” I would feel more comfortable had the prospective new owner, Walgreen, would have said that.

Gordon Arnold
Guest
9 years 11 months ago

There is a wealth of information and time study for retailers to learn from the American Automotive Industry’s Global migration. Likewise, the Japanese automakers provide another interesting observation of global market approach. The first imperative for any company is to rid all markets from using the singular “we” statements. In any event the new Walgreens is in for a lot of new ways of looking at its company(s).

Steve Montgomery
Guest
9 years 11 months ago

This should be a great deal for both Walgreens and Alliance Boots. Each can learn from the other’s best practices (as Walgreens/Duane Reade did) and be well prepared for further global expansion.

Raymond D. Jones
Guest
Raymond D. Jones
9 years 11 months ago

This is clearly a bold move, but it remains to be seen if it is a smart move. Drugstores tend to be local retailers, especially in Europe. How does the customer in Peoria benefit from Walgreens having stores in Madrid? How does it help them to compete?

Perhaps most important, pursuing a global strategy may detract from Walgreens’ focus domestically. One could argue they really need to fix their issues at home before taking on the world. My guess is the stock market will not be pleased with this move.

Art Williams
Guest
Art Williams
9 years 11 months ago

Walgreens doesn’t seem to realize that we have a sluggish economy and just keeps doing their thing. This is a very impressive move on their part and should prove to be a great strategic move. I expect it will strengthen and improve them on both continents.

Lee Peterson
Guest
9 years 11 months ago

The Duane Reade buy made sense; something to learn about fresh food, good design and an amazing urban market. But Boots? Not sure what the gain is other than World Domination, which, as we all know, has been attempted by many, achieved by no one.

Walgreens has so much work to do here in the U.S., you have to wonder if this move will cause a lack of focus to occur and allow a huge, formidable competitor the gap they need to come in and do some brand damage. The teams in Woonsocket are probably licking their chops about exactly that right now.

Robert Straub
Guest
Robert Straub
9 years 11 months ago

Let’s just hope Walgreens doesn’t start emulating Boots’ dreaded 3 for 2 policy.

Craig Sundstrom
Guest
9 years 11 months ago

My initial reaction — probably like many here not familiar with the AB brand — was “why the heck are they buying a footwear company?”

After I read the piece and reoriented my thinking, it became “makes perfect sense…so what’s gonna go wrong?” The concerns being Europe’s financial woes, and the usual (intangible but all-important) “company culture” thingy. I wish them well.

Bernice Hurst
Guest
9 years 11 months ago

As I recall, the expectation when Boots became Alliance Boots not all that many years ago was that it would be sold on sooner rather than later. It is the biggest such chain in England and added optician Dolland & Aitchison not so long ago so has been on a growth trajectory while simultaneously differentiating itself from other, smaller, pharmacy chains (e.g. SuperDrug, Lloyds). On the other hand, I’m not sufficiently familiar with Walgreen to know what advantage the purchase will have for them. My own initial reaction is that other retailers have tried to get into foreign markets about which they know little and have not always been successful. It’s costing good old Tesco, for example, quite a hefty sum to get out of Japan. The path to retail world domination, as Lee has already implied, is strewn with obstacles.

Dave Wendland
Guest
9 years 11 months ago

Make no mistake, this is a big deal. Not only will there be retail best practices that both will learn from one another, but Walgreens will have a global view “from the inside.” Boots has also become more actively involved in the distribution side of their operation which is an area that Walgreens could further exploit. And, finally, this may restrict Boots’ brand proliferation in the US allowing Walgreens to build on this best-in-breed asset.

Ed Rosenbaum
Guest
9 years 11 months ago

I am not a traveler of the world by any means. But it seems Europe is made up of smaller stores many of which are privately held. Alliance Boots might be one of the largest European drug retailers. Isn’t this the way Walmart took over the U.S. market? Starting with moving into areas heavily concentrated by smaller retailers and driving them out of business. Maybe Walgreens is taking a page from the Walmart manual.

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