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Walgreens Boots Alliance explores $70bn buyout

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Via Financial Times

Walgreens Boots Alliance, the US-listed global drugstore group, has been exploring the possibility of a $70bn take-private deal, holding talks with a handful of private equity groups about what would be the largest buyout in history, people with direct knowledge of the matter said.

The discussions follow more than a decade of aggressive dealmaking by Italian billionaire Stefano Pessina, who owns 16 per cent of Walgreens shares and who has assembled a retail and drug wholesaling business that now spans 25 countries. The group includes more than 18,750 stores in 11 countries and has annual revenues of nearly $34bn.

One of the people with knowledge of the discussions warned that a take-private was a long shot that would face a number of challenges — not least the size of the transaction. The current record buyout, of energy company TXU in 2007, was valued at $45bn.

No final decision has been made about whether to pursue the buyout idea, the person added, and it was not clear whether financing on such a scale would be available. Walgreens declined to comment.

Walgreens shares rose 4 per cent in afternoon trading in New York after Bloomberg and Reuters reported news of a possible take-private on Tuesday. That gave the company’s equity a market value of $55bn. It also has net debt of around $15bn.

The talks come with Walgreens share price down nearly 40 per cent since last December. Mr Pessina has expressed his preference to turn companies around away from the glare of public markets.

Walgreens has been under pressure to cut costs as its operating income fell by a fifth in the last year. The Illinois-based group has a huge footprint in physical retail, operating the Walgreens and Duane Reade brand stores in the US and the Boots chain of pharmacies in the UK.

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Boots has suffered after the UK’s National Health Service cut the amount it reimburses for prescriptions, when its retail business was already under pressure from cheaper rivals including supermarkets, discount stores and Superdrug, the chain backed by Li Ka-shing’s AS Watson retail group.

A transaction would mark an audacious return to form for Mr Pessina, a restless dealmaker whose efforts to create a global pharmacy empire began with the formation of Alliance Santé in 1991 and created one of the world’s largest buyers of prescription drugs.

Mr Pessina’s vision for a pan-European medicine chain met opposition in several countries, but the 1997 acquisition of Unichem provided Mr Pessina with a foothold in the UK, followed in 2006 by a merger with market leading pharmacy chain Boots.

He teamed up with US buyout group KKR to take the combined business private in 2007 in a leveraged buyout funded by £9bn of debt. By the time Walgreens paid $23bn for its British rival in a two-part deal that completed in 2014, Mr Pessina had created a transatlantic behemoth, which today employs 440,000 people.

The group also owns Alliance Healthcare, a wholesale distributor, delivering to hundreds of thousands of pharmacies, doctors and hospitals, and a stake in AmerisourceBergen, the US drug wholesaler. Shares in AmerisourceBergen fell 4 per cent after the first reports of a deal.

As part of a large cost-cutting programme, Walgreens has been closing unprofitable locations, including 200 Walgreens stores, 150 in-store clinics and 200 Boots stores, and laying off employees. The aim is to save $1.8bn a year by 2022. It expects adjusted earnings per share to be flat next year on a constant currency basis.

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