The other reason this deal does not seem to be good for Walgreen is because of the price they are paying for the company. Walgreen expects the acquisition to increase EPS by 23 - 27 cents per share. Based on outstanding shares, this means that Walgreen 45% stake will bring in around $235 million in earnings annually. This is actually quite disappointing based on the purchase price of $6.7 billion. Walgreen is essentially paying 28x annual earnings. In addition, Alliance Boots has around $11 billion in debt, meaning that the company is fairly leveraged.
The actual quote is "Walgreen said the deal, which will put four of its senior executives on the Alliance Boots board, is expected to help net earnings by 23 to 27 cents per diluted share in the first year following completion.
Combined synergies across both companies were forecast between $100 million and $150 million in the first year and $1 billion by the end of 2016."
You would get your synergies up front within the first year, Note ESRX and MHS is 1B within first year. Why in 2016 as opposed to 2014 or 2015? Whats so big about 2016, or do they mean that a total of 1B will be saved from today to 2016....I think thats what they mean 2013, 2014, 2015, 2015 combined savings of almost 1B...mostly PR stuff.
Wag down about 6% today on huge volume (already ~5x normal volume and the day isn't even done yet)......ouch.....market doesn't like this deal ! Walgreen grasping at straws.....taking on a lot of debt....looks like a big gamble....still won't help solve their PBM problems.