Retail News Breaks
Walgreens-Boots: The making of a global player
October 8th, 2012
DEERFIELD, Ill. – The agreement that put Walgreen Co. and Alliance Boots on the road to an eventual merger had its origin in a global tour of innovative retailing formats undertaken by Walgreens’ management team.
At the suggestion of executive vice president/chief financial officer and president of international Wade Miquelon, vice president and chief merchandising officer Brian Pugh, and other Walgreens executives with international experience, president and chief executive officer Greg Wasson decided, shortly after taking leadership of the company in 2009, that it was time for the retailer to open up to the world and look beyond its traditional area of operations in the United States. London was among the stops on the trip, which took Wasson and a small group of colleagues through Asia and various places in Europe.
“It was a real eye-opener for me, who grew in this company and spent my entire business career in the U.S.,” recalls Wasson. “There’s a lot of innovation happening outside this country; we don’t have a lock on it.”
WALGREENS & ALLIANCE BOOTS:
The encounter with members of Alliance Boots’ management — including Alex Gourlay, CEO of the company’s health and beauty division — was particularly fruitful. It quickly became evident that the two organizations held similar views about the evolution of health care and retailing, and the role Walgreens and Alliance Boots intended to play going forward.
“We had complementary strengths and operated in different geographic areas,” Wasson says, “so it made sense to cooperate and share best practices. They wanted to hear more about what we were doing in the health care space with things like central fill and in-store clinics, and we wanted to learn about Boots’ innovative concepts in beauty care and other front-end categories.”
The favorable impression was confirmed when Wasson met with Alliance Boots executive chairman Stefano Pessina, who wasn’t present at the initial meeting, several months later.
“The biggest thing that led us to where we are today is that Stefano and I realized there is a need for an international player in this sector,” notes Wasson. “Our suppliers, in both the pharmacy and the front-end business, have become more global in their outlook, and they are seeking retail and wholesale partners with the same vision and reach.
“There aren’t two better brands that could come together in this space. We’re very strong in the key U.S. and European markets, and Alliance Boots has established a presence in China, Thailand and other parts of Asia. Latin America will be another piece of the puzzle.”
"The biggest thing that led us to where we are today is that Stefano and I realized there is a need for an international player in this sector."
— Greg Wasson
A series of collaborations between Walgreens and Alliance Boots grew out of those first meetings, a process that allowed the parties to get to know one another and confirmed that their basic approach was in harmony.
“We quickly began to see a good cultural fit, not only between Stefano and me, but all along the line,” says Wasson. “Many of us were trained as pharmacists and have the same orientation. There was a meeting early on when we had teams from each company working together on some things and I leaned over to Stefano and said, ‘Except for the accents, you really can’t tell who belongs on which team.’ ”
Even with all the commonalities, executives at Walgreens and Alliance Boots have no illusions about the hard work that lies ahead if this unprecedented two-stage deal, valued at some $16.2 billion, is to produce a whole greater than the sum of its parts. In addition to enhanced buying clout — the combined entity will be the world’s biggest purchaser of prescription medications and many over-the-counter health products — and synergy savings of $1 billion by the end of 2016, the merger is expected to raise the level of Alliance Boots’ performance in such areas as e-commerce and health and wellness services, while strengthening Walgreens’ operations in such disciplines as distribution and store brand programs.
Walgreens will also benefit from Alliance Boots’ expertise in product development.
“One of the hidden gems in this transaction is their innovation group in Nottingham,” says Wasson. “They have several hundred folks over there dedicated to coming up with new consumer product concepts. I’ve spent time with them, and every time I do I become more intrigued.”
The first stage of the transaction was completed in August, when Walgreens paid $6.7 billion, comprised of $4 billion cash and 83.4 million shares of stock for a 45% stake in Alliance Boots. The option to acquire the balance of the company for about $9.5 billion in cash and stock can be exercised by Walgreens three years from now.
“We thought through how the deal was structured very carefully,” says Wasson. “If we had done this in a single step, we would have had to figure out how to integrate everything on day one and run the risk of losing focus on our existing businesses. The two-step process enables us to begin taking advantage of meaningful synergies while figuring out the best way to leverage the unique range of capabilities that we now possess.”
The integration process is in full swing, with parallel teams at each company interacting regularly to seamlessly stitch the two organizations together.
Major opportunities fall into “three buckets,” to use one of Wasson’s favorite expressions. The merger will accelerate the evolution of the traditional drug store format to “something new and unique”; create the first pharmacy-led global health care platform, “with a supply chain unmatched in the industry”; and provide a solid foundation for rapid international expansion.
“We’re very pleased with the enthusiasm that we’re seeing among our supplier relationships,” says Wasson. “They’re really intrigued about what the combination of these two outstanding brands will mean for them in terms of innovation and finding different and better ways to work together for the good of pharmacy patients and front-end consumers.
“What this transaction has done for stakeholders in Walgreens and Alliance Boots — shareholders, employees, customers and business associates — is set up a long-term, high-growth company. I can’t think of two stronger, better brands than ours to bring together. It would be very difficult for anyone else to replicate what we’re building.”
*To read the full 14-page special report on the Walgreens-Alliance Boots merger, which includes interviews with the architects of the deal and key executives of both companies, please see the Oct. 8, 2012, print issue of Chain Drug Review.
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