LONDON (The Deal) -- Healthcare products retailer Walgreen (WAG) said on Wednesday it is striking out early to reel in the outstanding 55% of European peer Alliance Boots with an agreement with co-investors including Kohlberg Kravis Roberts & Co. that is worth about $18.5 billion in cash, stock and assumed debt
The buyout will fully unite the market leader in the U.S. with the No. 1 in the U.K. and the Republic of Ireland and Europe's leading pharmaceuticals wholesaler and the owner of attractive consumer brands including No. 7 cosmetics and the Soltan sun protection range.
The companies will be merged under a new Chicago area-based holding company, Walgreens Boots Alliance Inc. Walgreen boss Greg Wasson will be president and CEO of that entity, while Alliance Boots Chairman and co-owner Stefano Pessina will move to the enlarged company as vice chairman, responsible for strategy and M&A. Walgreens Boots Alliance will have about 11,000 stores in 10 countries.
The terms of the agreement were arranged with Walgreen's original, June 2012 investment in the European company but a rise in the Deerfield, Ill.-based company's share price has lifted the price. As agreed in June 2012, Walgreen will pay just over $5.29 billion in cash, and issue about 144.3 million shares to the selling shareholders.
That stock is worth about $4.7 billion, based on Walgreen's $69.12 closing price on Tuesday; whereas the June 2012 deal had stipulated a minimum Walgreen price of $31.18 a share and envisaged a total value of $9.5 billion for phase two of the deal. Walgreen paid $6.7 billion in cash and stock for its initial 45% stake. With the second stake purchase, it will also assume Alliance Boot's debt, which was about $8.5 billion as of March 31.
The June 2012 agreement gave Walgreen the option to buy the rest of the company between February and August next year but the parties agreed to bring it forward. Significantly also, Walgreen has ditched reported plans to use the buyout to switch its tax domicile to Europe amid a domestic outcry about so-called inversions and a pending clampdown on the practice. Alliance Boots has itself drawn criticism for its Swiss domicile.