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Walgreens-Rite Aid merger is still pending
Like a chess grandmaster arranging his pieces on the board to get in a winning end game, Stefano Pessina, CEO of Walgreens Boots Alliance, has been making a series of key actions to follow through on the pioneering transnational, retail-and-wholesaling business he has created over the past several years.
A Sept. 8 announcement from the company noted that it is continuing its negotiations with the Federal Trade Commission over the proposed acquisition of Rite Aid, the No. 3 US chain pharmacy. The company stated that it now expects to divest more than 500, but less than 1,000, retail stores to meet FTC requirements. Financial press and investment-community chatter over the summer was pointing toward an FTC rejection of the acquisition, but the company “continues to believe that the acquisition will close in the second half of calendar 2016 … [and] that the acquisition will be accretive to its adjusted earnings per share in the first full year after closing of the transaction.”
A couple weeks prior, two other actions were taken. Ahead of a previous March 2017 commitment, WBA has exercised warrants to purchase, for $1.2 billion, nearly 23 million shares of AmerisourceBergen, the No. 2 wholesaler in the US and the company with which WBA has a longterm supply agreement. The warrants were issued when the agreement was made with ABC dating back to 2013. WBA now owns 23.9% of ABC.
Also in late August, WBA announced another arrangement, this time between its Specialty Pharmacy unit and Prime Therapeutics, a leading PBM in the US. The agreement, subject to antitrust review, “introduces a new model that aligns pharmacy, PBM and health plans to coordinate patient care, improve health outcomes and deliver cost of care opportunities,” according to a joint statement from the two organizations, by creating “a new retail pharmacy network agreement and the combination of the companies’ central specialty pharmacy and mail service businesses.”
Prime Therapeutics, owned by 14 of the Blue Cross/Blue Shield health insurers, is the No. 4 PBM and covers 22 million lives. The announcement did not specify any payment or financial incentive for either party; but the combination will have financial reporting consolidated with WBA, and a separate board of directors and executive team will be chosen by the two companies later this year.
For pharma companies, one eye might be watching the FTC M&A oversight trend as pharma companies themselves undergo continued M&A activity; the other eye is looking at the reduction in the number of buyers of its products, especially in the key specialty pharmaceutical arena. “We’re trying to apply the brakes to this run-away freight train of rising drug costs by aligning the cost control expertise of the trusted Blue + Prime model with Walgreens supply chain capabilities and sending a message that we are on board with finding a solution to this issue,” said Jim DuCharme, CEO of Prime. “We believe that the care, value and commitment that we will deliver together will create benefits to our Blue Plan clients and members.”