AmerisourceBergen Announces Strategic, Long-Term Relationship with Walgreens and Alliance Boots

Tue Mar 19, 2013 6:30am EDT

* Reuters is not responsible for the content in this press release.

Agreement Includes 10-Year Brand and Generic Distribution Contract with
Walgreens and Access to Generics Sourced Through Walgreens Boots Alliance
Development GmbH Joint Venture

VALLEY FORGE, Pa.--(Business Wire)--
AmerisourceBergen (NYSE: ABC) today announced that it is entering into a
strategic, long-term relationship with Walgreen Co. and Alliance Boots GmbH,
which will streamline the distribution of pharmaceuticals to Walgreens` stores
and leverage global supply chain efficiencies while improving patient access to
affordable pharmaceuticals to increase the efficiency of the healthcare system.
AmerisourceBergen`s new expanded relationship with Walgreens and Alliance Boots
includes: a ten-year comprehensive primary pharmaceutical distribution contract
with Walgreens; access to generic drugs and related pharmaceutical products
through the Walgreens Boots Alliance Development joint venture; and
opportunities to accelerate the Company`s efforts to grow its specialty and
manufacturer services businesses domestically and internationally. In
furtherance of this new partnership, Walgreens and Alliance Boots together have
been granted rights to purchase an equity position in AmerisourceBergen, which
is described in greater detail below. 

The new agreements are expected to be meaningfully accretive to
AmerisourceBergen`s earnings and strengthen its confidence in delivering solid
and sustainable long-term EPS growth. AmerisourceBergen has serviced Walgreens`
specialty business for several years, and in our fiscal 2014, the new
relationship is expected to contribute an incremental $28 billion in revenues
and approximately 20 cents in earnings per share, excluding the amortization of
certain expenses related to the transaction, and certain non-recurring costs,
and net of certain start up expenses. 

"AmerisourceBergen is very excited to be joining in this unique global
relationship with two of the undisputed leaders in healthcare," said Steven H.
Collis, President and Chief Executive Officer of AmerisourceBergen. "As we all
recognize the imperatives of health reform not only here in the U.S. but also
globally, we have entered into a unique opportunity to unlock value in the
pharmaceutical supply chain by collaborating to leverage all of our proven
strengths. This new relationship will significantly strengthen and grow our core
business and increase our ability to deliver innovative solutions to our
customers, and long-term benefits to all of our stakeholders. Importantly, these
agreements not only expand our U.S. business, but also provide opportunities to
meaningfully grow our specialty and manufacturer services businesses

"Today`s announcement marks another step forward in establishing an
unprecedented and efficient global pharmacy-led, health and wellbeing network,
and achieving our vision of becoming the first choice in health and daily living
for everyone in America and beyond," said Gregory Wasson, President and Chief
Executive Officer of Walgreens. "We are excited to be expanding our existing
relationship with AmerisourceBergen to a ten-year strategic long-term contract,
representing another transformational step in the pharmaceutical supply chain.
We believe this relationship will create a wide range of opportunities and
innovations in the rapidly changing U.S. and global healthcare environment that
we expect will benefit all of our stakeholders." 

"This agreement with AmerisourceBergen, which we consider to be the
best-positioned pharmaceutical wholesaler in North America, is a promising
development for Walgreens and Alliance Boots following the formation of our
strategic partnership last year," said Stefano Pessina, Executive Chairman of
Alliance Boots. "We strongly believe that our new partnership with
AmerisourceBergen will deliver long-term shareholder value by creating an
unmatched network of companies that is well positioned to anticipate increasing
market needs and expectations across the world. Together we will bring tailored
solutions to business partners, including manufacturers and pharmacists, as well
as to patients and consumers." 

Branded and Generic Pharmaceutical Distribution Contract

The ten-year comprehensive primary pharmaceutical supply agreement includes the
distribution of brand, generic, and specialty pharmaceuticals to Walgreens`
retail stores, mail order and specialty pharmacies. The distribution contract is
effective September 1, 2013, and initially will include branded pharmaceutical
products that Walgreens has historically sourced from distributors and
suppliers. Over time, beginning in calendar year 2014, AmerisourceBergen will
increasingly assume the distribution of the generic products that Walgreens has
historically self-distributed. The increased volume will utilize unused capacity
in AmerisourceBergen`s distribution network, leverage prior investments in our
new enterprise resource planning system, and will help continue to drive
improvements in operational efficiency and productivity in the years ahead. 

Global Supply Chain Opportunities

AmerisourceBergen`s access to the recently established Walgreens Boots Alliance
Development enables the Company to access generics and related pharmaceutical
products utilizing a global platform that is designed to make it easier for
manufacturers to bring products to market, improve access to pharmaceuticals for
healthcare providers worldwide, and yields compelling new offerings to community
pharmacies and others. In addition, we expect to share global distribution best
practices with Walgreens and Alliance Boots, and to seek additional avenues for
collaboration on new projects and services for the benefit of all of our

Opportunities to Expand Specialty and Manufacturer Services Businesses

In addition to the pharmaceutical supply contracts, AmerisourceBergen has agreed
to collaboratively share best practices and to cooperatively work with Walgreens
and Alliance Boots to provide manufacturers with integrated solutions for global
clinical trial logistics and innovative global third party logistics services by
leveraging World Courier`s position as a global leader in premium logistics. In
addition, Alliance Boots` growing specialty activities with European biotech
manufacturers and AmerisourceBergen`s pharmaceutical product commercialization
and patient support services offer manufacturers unique opportunities to expand
patient access to biotech products in Europe and beyond. 

Equity Position

As part of the value creation inherent in these agreements and to align
interests and strengthen the long-term relationship, Walgreens and Alliance
Boots together have been granted the right to purchase a minority equity
position in AmerisourceBergen, beginning with the right to purchase up to 7
percent of the fully diluted equity of AmerisourceBergen in the open market. In
addition, AmerisourceBergen has granted to Walgreens and Alliance Boots equity
warrants exercisable for 16 percent in the aggregate of the fully diluted equity
of AmerisourceBergen. The first tranche of warrants, representing 8 percent of
the fully diluted equity of AmerisourceBergen, has a strike price of $51.50 and
will be exercisable for a six-month period beginning in March 2016. The second
tranche of warrants, also representing 8 percent of the fully diluted equity of
AmerisourceBergen, has a strike price of $52.50 and will be exercisable for a
six-month period beginning in March 2017. The warrants will be allocated equally
among Walgreens and Alliance Boots. Walgreens and Alliance Boots have agreed to
customary transfer restrictions on their equity stake, and have also agreed not
to acquire additional equity of AmerisourceBergen under the terms of a
standstill agreement, subject to the terms and conditions of such agreement,
including certain pre-emption rights and permitted exceptions. 

Walgreens will have the ability to appoint one director to AmerisourceBergen`s
board upon Walgreens and Alliance Boots together acquiring a 5 percent equity
stake, and a second director upon exercise in full of the first warrants. These
new board seats will add to the Company`s current nine-member board. 

Regulatory Approvals Required

The equity investment by Walgreens and Alliance Boots is subject to the receipt
of customary regulatory approvals. 

Revised Guidance for Fiscal 2013

As a result of this new relationship, the Company expects incremental brand
revenues of at least $2 billion in September of 2013, and we have increased our
guidance for revenue growth to 8 percent to 11 percent for the full fiscal year.
The company has revised its expectations for GAAP earnings per share from
continuing operations for fiscal 2013 to a range of $2.96 to $3.06, as certain
one-time start up operational expenses and transaction costs will more than
offset the addition of the new business late in our fiscal fourth quarter. The
revised range does not include the impact of a significant one-time LIFO expense
due to the inventory build anticipated in relation to the new business, or an
intangible amortization expense related to the equity warrants. We expect to
have additional information available on the LIFO and amortization expenses, the
expected decline in operating margins and other items when we report results for
our March fiscal quarter. 

The Company had previously expected free cash flow for fiscal 2013 to be in the
range of $750 to $850 million, and now expects that range to decrease
significantly to $100 to $200 million as we onboard the new business, and incur
an additional $40 million in related capital expenses. 

Conference Call

The Company will host a conference call today at 7:30 a.m. Eastern Daylight.
Participating in the conference call will be: Steven H. Collis, President and
Chief Executive Officer of AmerisourceBergen; and Tim G. Guttman, Senior Vice
President and Chief Financial Officer of AmerisourceBergen. In addition, Gregory
Wasson, President and Chief Executive Officer of Walgreens, and Stefano Pessina,
Executive Chairman of Alliance Boots, will be our special guests on the
conference call. 

To access the live conference call via telephone:
Dial in: The dial-in number for the live call will be (612) 326-1011. No access
code is needed. 

To access the live webcast:
Go to the Investor Relations page at 

A replay of the telephone call and webcast will be available from 10:30 a.m.
March 19, 2013 until 11:59 p.m. March 26, 2013. The Webcast replay will be
available for 30 days. 

To access the telephone replay from within the US, dial 800-475-6701. From
outside the US, dial 320-365-3844. The access code for the replay is 286668. 

To access the archived webcast, go to the Quarterly Webcasts section on the
Investor Relations page at 

Additional Information

AmerisourceBergen intends to promptly file with the Securities and Exchange
Commission a current report on Form 8-K, which will include the Framework
Agreement, Warrants and Shareholders Agreement. You should refer to the Form 8-K
when it is available for more detailed information regarding this strategic
transaction between AmerisourceBergen, Walgreens, and Alliance Boots and related

About AmerisourceBergen

AmerisourceBergen is one of the world's largest pharmaceutical services
companies serving the United States, Canada and selected global markets.
Servicing both healthcare providers and pharmaceutical manufacturers in the
pharmaceutical supply channel, the Company provides drug distribution and
related services designed to reduce costs and improve patient outcomes.
AmerisourceBergen's service solutions range from niche premium logistics and
pharmaceutical packaging to reimbursement and pharmaceutical consulting
services. With over $80 billion in annualized revenue, AmerisourceBergen is
headquartered in Valley Forge, PA, and employs approximately 13,000 people.
AmerisourceBergen is ranked #29 on the Fortune 500 list. For more information,
go to 

AmerisourceBergen`s Cautionary Note Regarding Forward-Looking Statements

Statements in this release that are not historical are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Words such as "expect," "likely," "outlook,"
"forecast," "would," "could," "should," "can," "will," "project," "intend,"
"plan," "continue," "sustain," "synergy", "on track," "believe," "seek,"
"estimate," "anticipate," "may," "possible," "assume," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are based on management`s current expectations and
are subject to uncertainty and changes in circumstances. These forward-looking
statements are not guarantees of future performance, are based on assumptions
that could prove incorrect or could cause actual results to vary materially from
those indicated, and are subject to risks and uncertainties, including the
failure to obtain the required U.S. and foreign antitrust regulatory approvals
for the equity investments by Walgreens and Alliance Boots in AmerisourceBergen,
the occurrence of any event, change or other circumstance that could give rise
to the termination, cross-termination or modification of any of the transaction
documents, including, among others, the distribution agreement or the generics
agreement, an impact on AmerisourceBergen`s earnings per share resulting from
the exercise of the warrants, the disruption of AmerisourceBergen`s plans and
operations as a result of the transaction, the inability to realize anticipated
synergies, including synergies resulting from participation in the Walgreens
Boots Alliance Development GmbH joint venture,potential operating dis-synergies,
disruption resulting from potential vendor, payor and customer reaction to the
transaction, the inability to achieve anticipated financial results, unexpected
costs, fees, expenses and charges incurred by AmerisourceBergen related to the
transaction, the disruption of AmerisourceBergen`s cash flow and ability to
return value to its stockholders in accordance with its past practices, risks
associated with international business operations, changes in vendor, payer and
customer relationships and terms, the reduction of AmerisourceBergen`s
operational, strategic or financial flexibility, and other factors described in
Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and
Quarterly Report on Form 10-Q, each of which is incorporated herein by
reference, and in other documents that we file or furnish with the Securities
and Exchange Commission. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those indicated or anticipated by such forward-looking
statements. Accordingly, you are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date they are made.
Except to the extent required by law, AmerisourceBergen does not undertake, and
expressly disclaims, any duty or obligation to publicly update any
forward-looking statement after the date of this report, whether as a result of
new information, future events, changes in assumptions or otherwise.

Barbara Brungess, 610-727-7199

Copyright Business Wire 2013

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