Walgreens buys Boots and targets $1bn of savings
DRUGS STORE giant Walgreens is targeting $1 billion (£594 million) of cost cuts after agreeing a deal to become the outright owner of venerable chemist Boots.
Insiders insisted last night that no job cuts were planned among the UK staff at Alliance Boots, which traces its history back to 1849, when John Boot started selling herbal remedies in Nottingham.
Under the terms of yesterday’s deal, Walgreens will pay £3.1bn in cash and 144.3 million in shares for the outstanding 55 per cent stake in Alliance Boots, which owns Boots the Chemist and pharmaceuticals distributor Alliance.
The enlarged entity, to be called Walgreens Boots Alliance, will be headquartered in the Chicago area after the US group decided not to pursue plans to cut its tax bill by seeking a foreign domicile. Boots will retain its base in Nottingham.
Walgreens boss Greg Wasson, who will head up the combined group, said: “We are excited to move forward with the next important step in becoming a new kind of global healthcare leader. Expanding globally with Alliance Boots will make quality healthcare more affordable and accessible to communities here in America and around the world.”
He said the group would be seeking $1bn in savings over the next three years through “corporate, field and store-level cost reductions”, but a source said no store closures or job losses were planned in the UK.
Alliance Boots executive chairman Stefano Pessina teamed up with private equity firm KKR to take the Nottingham-based business private in an £11.1bn deal in 2007. Pessina will remain as executive vice chairman of the combined company, responsible for strategy and mergers and acquisitions.
He said: “The expected creation of the new enterprise will represent the most significant milestone in the history of Alliance Boots and, importantly, a very positive step for the healthcare industry as a whole.
“Together with Walgreens, we have already made good progress over the past two years and I strongly believe that the merger will bring significant growth opportunities for both mature and emerging markets.”
Walgreens trades from more than 8,500 locations across the US, while Alliance Boots has 2,500 stores and about 75,000 staff in the UK.
The Unite union said Boots has lowered its UK tax bill by more than £1 billion since it was taken private, adding: “The UK government should require companies like Alliance Boots to disclose more information about the locations of their profits and tax bills.”
Walgreens, which bought its 45 per cent stake in Alliance Boots for $6.7bn in 2012, had considered bringing the two firms together under a foreign company in a so-called “inversion” deal to help trim its tax bill.
However, Wasson said the company was mindful of the potential public and political reaction to such a transaction, given Walgreens’ “unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programmes”.
He added: “We could not arrive at a structure that provided the company and our board with the requisite level of confidence that a transaction of this significance would need to withstand extensive Internal Revenue Service review and scrutiny.
“As a result, the company concluded it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the US.”