AmerisourceBergen Corp. (NYSE:ABC), the Drug distributor have entered into an agreement with Walgreen Company (NYSE:WAG), the largest U.S. drugstore chain and Alliance Boots that would deliver $28 billion in incremental revenue in fiscal 2014 and give rights to the Walgreen and Boots to acquire up to 23 percent in AmerisourceBergen.
The terms of the deal allow Walgreen Company (NYSE:WAG) and Alliance Boots together to acquire up to 7 percent stake in Amerisource’s, in the open market. In addition, Amerisource will provide warrants, to Walgreen and Alliance Boots, which can be converted into 16 percent equity in the company. Once the equity arrangements are sorted out, Walgreen and Alliance Boots will hold two board seats at Amerisource. The agreement is for 10 years, the companies said today in a statement.
“The new agreements are expected to be meaningfully accretive to AmerisourceBergen Corp. (NYSE:ABC)’s earnings and strengthen its confidence in delivering solid and sustainable long-term EPS growth,” the company said in a statement on Tuesday.
The Drug distributor has a market capitalization of about $11 billion, and if Walgreen Company (NYSE:WAG) and Alliance Boots exercise their rights then based on current shareholdings, jointly they will be the largest shareholder in Amerisource. Walgreen has 45 percent stake in Alliance Boots with an option to acquire the remaining 55 percent by August 2015.
The deal between the biggest U.S. and European drug retailers includes the distribution of branded, generic and specialty drugs to retail stores, mail order and specialty pharmacies. The contract will help the Drug distributor to expand its global reach.
The deal will be effective from September 1st and is expected to contribute about 20 cents in earnings per share for the fiscal 2014 ending September for AmerisourceBergen Corp. (NYSE:ABC). For fiscal 2013 ending September, Amerisource is now expecting earnings of $2.96 to $3.06 per share from continuing operations down from its previous estimates of $3.06 to $3.16. The drug distributor expects at least $2 billion in incremental brand revenue in September and up the revenue growth estimates to 8-11 percent for the fiscal year compared to 6-9 percent earlier. For fiscal 2012, Amerisource reported revenue of $79.49 billion. Free cash flow for fiscal 2013 is expected to decline to $100-$200 million against the previous estimates of $750 million to $850 million.
Walgreen, which operates more than 8,000 drugstores, also reported today better-than-expected second-quarter earnings backed by healthy gross margins. Shares of the Walgreen Company (NYSE:WAG) were up 1.3 percent at $43, also in thin trading. AmerisourceBergen Corp. (NYSE:ABC) shares gained 6.6 percent in the premarket trading at $51.50.