* Walgreen, Alliance Boots to take stake of up to 23 pct
* Cardinal says made plans to mitigate loss
* AmerisourceBergen shares gain, Cardinal falls
March 19 Walgreen Co and partner
Alliance Boots said on Tuesday they signed a 10-year
deal with AmerisourceBergen and will take up to a 23
percent stake in the distribution company, ending Walgreen's
current contract with Cardinal Health Inc.
The agreement with Walgreen, the largest U.S. drugstore
chain, and Alliance Boots, the European health and beauty chain
in which Walgreen has a 45 percent stake, will boost
AmerisourceBergen's revenue by $28 billion and earnings by 20
cents per share in fiscal 2014.
Walgreen and Alliance Boots have the right to buy up to 23
percent of AmerisourceBergen as part of the deal, starting with
a 7 percent stake on the open market. Amerisource granted
Walgreen and Alliance Boots warrants exercisable for 16 percent
equity in Amerisource.
AmerisourceBergen shares rose 6.6 percent in light premarket
trading to $51.50. Shares in Cardinal Health, whose contract
ends in August, fell 8 percent.
Cardinal Health said in a statement that it has been
planning to mitigate the contract loss and is still targeting
fiscal 2014 earnings from continuing operations at least similar
to fiscal 2013's expected range of $3.42 to $3.50 per share. It
said the contract expiration would not affect fiscal 2013
Cardinal also has a contract with drugstore CVS Caremark
Corp that expires this year.
Shares in Walgreen were up 1.3 percent at $43. The company
on Tuesday separately reported better-than-expected
second-quarter earnings helped by sales of generic prescription
Walgreen's deal to buy a stake of AmerisourceBergen comes at
a time when the U.S. healthcare industry and the pharmaceutical
sector are under price pressure from the government and
consumers who want to cut their medical spending.
The contract with the biggest U.S. and European drug
retailers, will give Amerisource a bigger global reach, and
includes the distribution of branded, generic and specialty
drugs to retail stores, mail order and specialty pharmacies.
Amerisource has a market capitalization of about $11
billion. If the pharmacy chains fully exercise their rights,
they will together be the biggest shareholder in Amerisource,
based on current shareholdings. They will hold up to two board
seats at Amerisource.
Walgreen has a 45 percent stake in Alliance Boots and an
option to acquire the remaining 55 percent by August 2015.
Amerisource said the deal, effective Sept. 1, was expected
to contribute about 20 cents in earnings per share in fiscal
2014 ending September.
But during a conference call the company also said it
expected its profit margins to be pressured because of the deal.
Amerisource said it now expected earnings of $2.96 to $3.06
per share from continuing operations in fiscal 2013 ending
September, down from its previous forecast of $3.06 to $3.16.
The company said it expects incremental brand revenue of at
least $2 billion in September and raised its revenue growth
forecast to 8-11 percent for the fiscal year.
It had previously forecast revenue growth of 6-9 percent.
Amerisource had revenue of $79.49 billion in fiscal 2012.
Amerisource said it expects free cash flow for fiscal 2013
to decrease to $100-$200 million as it takes on the new
business. The company previously expected cash flow of $750
million to $850 million.