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Walgreens, Alliance Boots, AmerisourceBergen get nod

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NEW YORK — The budding partnership between Walgreen Co., Alliance Boots GmbH and AmerisourceBergen Corp. has taken several steps forward, with regulators in the United States and Europe clearing the way for the first two companies to assume an equity stake in the third.

The actions pave the way for the short-term purchase of 7% of the equity of the pharmaceutical wholesaler, and the exercise of two warrants for an aggregate 16% of the company in 2016 and 2017.

Walgreens and Alliance Boots, which are on a path toward a full merger two years from now (the former currently owns 45% of the latter), will make the investments as part of the long-term strategic deal with ­AmerisourceBergen.

That agreement, which was announced in March, includes a 10-year primary pharmaceutical distribution contract with Walgreens; access to generic drugs and related products through the Walgreens Boots Alliance Development joint venture, and opportunities to develop the specialty and manufacturer services businesses in the United States as well as overseas.

In another development that bodes well for the three companies, Alliance Boots posted strong earnings growth in the face of tepid revenues during fiscal 2013 — a period characterized by the United Kingdom-based company as “a transformational year.”

Alliance Boots’ net income for the 12 months ended March 31 climbed 14% to £740 million from the £650 million earned by continuing operations in the prior year. After including a £57 million loss from discontinued operations in fiscal 2012, bottom-line results escalated 25% from £593 million.

Revenue reached £22.41 billion, up 0.6% in constant currency, but down 2.6% on a reported basis due to adverse currency translation, as the pound sterling was stronger against currencies in Boots’ other markets, particularly the euro.

Trading profit (operating profit before amortization of customer relationships and brands, various exceptional items, and share of post-tax earnings of associates and joint ventures) grew 7.4% in constant currency to £1.27 billion and advanced 6.1% on a reported basis.
EBITDA (earnings before interest, taxes, depreciation and amortization) escalated 5.8% to £1.51 billion in constant currency and was up 4.5% on a reported basis.

The company’s underlying profit (after-tax earnings before amortization of customer relationships and brands, exceptional items, timing differences within net finance costs and related tax) improved by 12.7% to £805 million.

Taking a closer look at Alliance Boots’ reported results, operating profit edged up 0.9% to £1.01 billion. However, pretax earnings from ongoing lines surged 21.7% to £837 million after factoring in a 27.4% drop in finance costs to £373 million and a 1.8% decline in finance income to £109 million.

“This has been a transformational year for Alliance Boots due to our exciting new strategic partnership with Walgreens, which we are further strengthening by our recent joint agreement to partner with AmerisourceBergen,” Alliance Boots executive chairman Stefano Pessina commented in a statement.

“Against the backdrop of this major corporate activity, and the challenging conditions across our markets, we have again delivered double-digit growth in underlying profit after tax.”

He added: “We continue to be confident about our prospects and ability to pursue profitable growth, organically, from our synergy programs and through international expansion. In a world where globalization is increasing at a pace, our transformational partnerships put us together in a unique position to become the clear world leader in both pharmacy and pharmaceutical wholesale.”

Within the company’s three divisions, the Health & Beauty retail segment (company-owned and franchised stores) posted trading profit of £865 million for the year, up 7% in constant currency and 6.8% on a reported basis. Revenue was £7.48 billion, down 2.1% in constant currency and 2.5% on a reported basis due to lower prescription dispensing ­revenues.

“Our health and beauty division delivered a good overall performance, despite tough retail markets across Europe and further regulatory pressures which impacted dispensing profitability,” Alliance Boots’ management commented.

“The U.K. profit performance was particularly strong, due to a focus on our core health and beauty categories, combined with the benefits of further development of the operating platform. Results were, however, disappointing across our other European markets, which were partially offset by good progress in building profitable sales in Asia and North ­America.”

Meanwhile, the company’s wholesale division — which ranks as the largest pharmaceutical wholesaler in Europe — generated trading profit of £435 million, up 8.2% in constant currency and 5.1% on a reported basis.

Revenues were £16.38 billion, up 1.5% in constant currency but down 2.7% on a reported basis.

Adheris Health

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