Walgreens Boots Alliance exercises warrants under 10-year partnership
DEERFIELD, Ill. — As part of a long-term partnership announced three years ago, Walgreens Boots Alliance (WBA) is enlarging its equity stake in AmerisourceBergen.
WBA said Friday that it has exercised warrants to buy more than 22,696,912 shares of AmerisourceBergen common stock for about $1.17 billion. The transaction was funded with cash on hand, and net earnings from the investment will be classified within the operating income of WBA’s Pharmaceutical Wholesale segment.
With the exercise of the warrants, WBA said it now owns 34,157,955 shares of AmerisourceBergen common stock, or 14.97% of the pharmaceutical distributor’s outstanding equity, based on outstanding shares as of Jan. 31 (adjusted to give effect to the exercise of the warrants).
WBA also holds warrants to buy another 22,696,912 shares of AmerisourceBergen common stock, which can be exercised starting in March 2017.
Walgreen Co. and Alliance Boots unveiled their long-term partnership with AmerisourceBergen in March 2013. The 10-year agreement included an expanded pharmaceutical distribution pact for Walgreens, global supply-chain opportunities with the Walgreens-Boots joint venture, and the right for the joint venture partners to buy an equity stake in AmerisourceBergen.
Under the arrangement, AmerisourceBergen granted Walgreens and Alliance Boots equity warrants exercisable for 16% in the aggregate of the fully diluted equity of AmerisourceBergen. The first tranche of warrants, at the time representing 8% of the fully diluted equity of AmerisourceBergen, had a strike price of $51.50 and could be exercised for a six-month period beginning in March 2016. The second tranche of warrants, also representing 8% of the fully diluted equity of AmerisourceBergen, had a strike price of $52.50 and could be exercised for a six-month period starting in March 2017.
In May 2013, regulators cleared Walgreens and Alliance Boots to exercise their right to buy up to 7% of the fully diluted equity of AmerisourceBergen in the open market. In addition, Walgreens and Alliance Boots were cleared to exercise equity warrants for 16% of the fully diluted equity of AmerisourceBergen. At the time, Walgreens said the regulatory clearances allow up to a 25% investment in AmerisourceBergen, including the effect of any stock buybacks by AmerisourceBergen.
Ornella Barra, executive vice president and president and chief executive officer of global wholesale and international retail at WBA, currently sits on the AmerisourceBergen board of directors. She was elected to the distributor’s board in January 2015, taking the seat vacated by former Walgreen Co. president and CEO Greg Wasson. Barra and AmerisourceBergen president and CEO Steven Collis, who became chairman earlier this month, are the only non-independent directors on the AmerisourceBergen board.
AmerisourceBergen’s board in September 2015 authorized a special $2.4 billion share repurchase program that the company said was designed to facilitate its warrant hedging strategy and mitigate the dilution of shareholder ownership that may result from the issuance of common stock upon the exercise of the warrants issued to Walgreens-Boots in March 2013.