Walgreen to buy stake in European pharmacy chain Alliance Boots

Walgreen Co. has agreed to buy a 45% stake in Alliance Boots, a European retail pharmacy chain, for $6.7 billion in a cash and stock transaction that will create the world's largest drugstore chain with more than 11,000 stores in 12 countries.

The deal, which represents the Deerfield, Ill., company's first international expansion, is expected to close Sept. 1 and includes an option for Walgreen to take full control of Alliance Boots three years after the deal closes.

Walgreen will pay the European pharmacy and beauty retailer $4 billion in cash and $2.7 billion in company stock.

Walgreen Chief Executive Greg Wasson said in a conference call that the company intends to buy the remainder of Alliance Boots within three years. The total takeover is expected to cost $9.5 billion in a combination of cash and stock.

He said the deal would create "immediate synergies" that would enable Walgreen to save as much as $150 million in the first year after the deal closes and as much as $1 billion by the end of 2016.

Under terms of the transaction, Alliance Boots' executive chairman, Stefano Pessina, and Dominic Murphy of the investment firm KKR & Co. will join the Walgreen board. Wasson and a number of other Walgreen executives will become board members of Alliance Boots.

Wasson declined to say what effect the deal may have on Walgreen's continuing spat with the pharmacy benefits manager Express Scripts Inc. When the two parted ways Jan. 1 after they were unable to come to terms on a new contract, Walgreen walked away from more than $5 billion in annual revenue. Walgreen has remained steadfast in the decision.

Walgreen also expects the agreement with Alliance Boots to accelerate its domestic strategy of transforming its stores into "health and daily living destinations," with expanded healthcare services, fresh food options and enhanced beauty departments.

Wasson said the deal would enable the two companies to expand on Alliance Boots' strategy to move into emerging countries by taking ownership positions in other companies.

pfrost@tribune.com

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Walgreen to buy stake in European pharmacy chain Alliance Boots