US retailer Walgreen buys 45% stake in Alliance Boots

Boots Oxford street store Walgreen will have the option to take full control of Boots by 2015

US retailer Walgreen is to pay $6.7bn (£4.3bn) for a 45% stake in UK rival Alliance Boots.

The cash and shares offer will cement Walgreen's position as the world's biggest pharmacy chain.

Alliance Boots runs a chain of chemists in the UK and more than 3,300 health and beauty retail stores in 11 countries around the world.

The company's wholesale business supplies pharmacies and doctors in 21 countries.

Analysis

Boots has been a name on the UK High Street since 1849, when it was set up in Nottingham by John Boot as a family run herbal medicine shop.

The deal between US giant Walgreen's and Alliance Boots is set to create the first global pharmacy business, with 11,000 stores in 12 countries.

Boots was bought out by private equity firm KKR for £11bn in 2007 in one of the UK's largest-ever private equity deals. KKR is in early-stage talks over an £8bn takeover of Orange and T-Mobile group Everything.

As part of the deal, Walgreen would have the option of buying the outstanding Boots shares by 2015, valuing the company at $9.5bn in total.

Profit boost

The Illinois-based company operates 7,890 pharmacies across the United States.

Nottingham-based Boots is smaller than its US rival but is Europe's biggest seller of health and well-being products. It also has strong internet sales.

Walgreen will pay $4bn in cash and swap more than 83 million shares for its stake in the privately-held Alliance Boots.

As a sweetener to shareholders, Walgreen raised its dividend payment from 22.5 cents to 27.5 cents.

The deal still needs to be approved by industry regulators.

The announcement coincided with the release of Walgreen's earnings for the three months to the end of May.

Net profit was $537m, down 11% on the $603m the company made in the same period last year. However, it said the stake in Alliance Boots would boost its earnings in the first year, should the deal go through.

Walgreen shares fell 6% in early trading in New York.

Global market

The deal will put Boots' major brands such as No7 cosmetics and the Botanics hair and skincare range in nearly 8,000 Walgreen and Duane Reade stores.

"I have done a deal to make Boots more visible, more international, to create new markets for Boots and for Nottingham," said Alliance Boots' executive chairman Stefano Pessina.

Walgreen's chief executive Gregory Wasson said he and his wife had been personally impressed by the No7 range.

"The UK will become the centre to develop and manufacture new products for a fantastic market like the American market. New York is the window of the world," he said.

The two companies have very little overlap. As a result, no job losses are expected from the deal. In fact, the BBC's business editor Robert Peston says the deal could create a world manufacturing centre in Nottingham, potentially increasing the number of jobs.

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