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Walgreen buys wholesaler stake; 2Q earnings up 11%

Mar. 20, 2013 @ 12:21 AM

The Associated Press

DEERFIELD, Ill.  —  Drugstore chain Walgreen Co. is buying an ownership stake in another big company, this time in a deal that could increase its clout when negotiating prices with drugmakers.

The Deerfield, Ill., company said Tuesday that it is expanding its supply agreement with AmerisourceBergen Corp. through a 10-year deal that gives it and European health and beauty retailer Alliance Boots a minority stake in the pharmaceutical wholesaler. Walgreen has a stake in Alliance Boots.

The latest announcement came the same day Walgreen said its fiscal second-quarter earnings climbed 11 percent, helped by contributions from Alliance Boots, a business sale gain, and its new contract with Express Scripts Holding Co.

In the AmerisourceBergen deal, Walgreen and Alliance Boots receive the right to buy up to 7 percent of AmerisourceBergen’s shares and warrants to purchase an additional 16 percent. Walgreen’s acquisition of a stake in Alliance Boots last year launched an international expansion for an initial investment of nearly $7 billion. The largest U.S. drugstore chain will wind up owning the entire AmerisourceBergen stake if it exercises its option to buy the rest of Alliance Boots in 2015.

AmerisourceBergen, in return, will supply Walgreen with both branded and generic drugs for its drugstores and mail order and specialty pharmacy businesses. Walgreen runs more than 8,000 stores.

The companies will be able to promise generic drugmakers a lot of business in return for a better price, said Jeff Jonas, who follows the industry as a portfolio manager with the asset management firm GAMCO Investors. But he said the companies won’t have as much leverage when negotiating prices for branded drugs, which are protected by patents and less sensitive to price competition.

For the fiscal second quarter, Walgreen reported net income of $756 million, or 79 cents per share, in the quarter that ended Feb. 28. That compares to earnings of $683 million, or 78 cents per share, in last year’s quarter, when it had fewer shares outstanding.

Excluding one-time items like acquisition-related costs, adjusted earnings totaled 96 cents per share.
 

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