Walgreen (WAG) shares are down 5% this morning after the company announced a big investment in UK health and beauty retailer Alliance Boots. Investors may be reacting to the deal, or to the messy quarterly results that Walgreen also announced.
Walgreen posted in-line earnings, but saw comparable store sales fall 6.6% in the third quarter, and prescription sales at comparable stores fell 9.9%. Its dispute with pharmacy benefits manager Express scripts (ESRX) weighed on results, reducing EPS by 6 cents, the company said (although it’s unclear whether that includes the impact that fewer prescriptions had on sales in the other parts of the store, which were also weak).
Walgreen and Express scripts have agreed to drop legal claims against each other, but it’s unclear whether Walgreen will be filling Express scripts prescriptions like it did before their partnership ended on Jan. 1. That could weigh on Walgreen, because Express scripts recently received government approval to buy Medco Health Solutions and become the biggest benefits manager in the country.
Walgreen will pay $6.7 billion for a 45% stake in Alliance Boots, and will have the option to take full control of the company in 2015. The deal will allow Walgreen to tap into emerging markets growth. The deal is worth 8.7 times Alliance Boot’s EBITDA, Bloomberg calculated.
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