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AmerisourceBergen (ABC), WBA Ink Deal to Focus on Core Arms

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Zacks Equity Research
·4 min read
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AmerisourceBergen Corporation ABC recently inked a strategic deal with Walgreens Boots Alliance, Inc. WBA to acquire the majority of the latter’s Alliance Healthcare business for around $6.5 billion, which comprises $6.275 billion in cash and 2 million shares of AmerisourceBergen common stock. In addition to this buyout, the companies have agreed to extend their U.S. strategic partnership through 2029, thereby leading to incremental growth as well as efficiencies in sourcing, logistics and distribution.

Notably, as of Jan 6, shares of AmerisourceBergen and Walgreens moved up 8.6% and 4.5%, respectively, following the announcement of this news.  

The transaction is expected to close by AmerisourceBergen’s fiscal 2021-end, subject to customary closing conditions and regulatory approvals.

The deal is likely to be substantially beneficial for both companies. While the transaction will allow Walgreens to focus more on its profitable core retail pharmacy business, AmerisourceBergen will be able to boost its existing global platform of manufacturer services and advance its capability to support global access.

Significance of the Deal

The strategic agreement between the companies will enable significant value creation and unlock new potential for both firms.

It is important to mention here that Alliance Healthcare is one of the largest pharmaceutical wholesalers in Europe. Hence, the transaction will enable AmerisourceBergen to strengthen its core wholesale business and expand distribution globally. Moreover, the buyout will provide a boost to AmerisourceBergen’s platform to deliver sustained growth throughout pharmaceutical distribution and manufacturer services.

With respect to Walgreens, this strategic alliance will help the company enhance its commitment to strengthen and transform its core retail pharmacy and healthcare business. Additionally, the transaction will help facilitate higher future investments and expedite its strategic goals.

Financial Impact of the Deal

Both companies anticipate the financial benefits of this key partnership to advance over the next three years to achieve annual run-rate synergies in the fourth year of at least $150 million, to be shared equally by the companies.

From the standpoint of Walgreens, the transaction will be slightly dilutive in the current financial year but accretive in the longer-term.

Industry Prospects

Per a report by MarketsandMarkets, the healthcare distribution market is expected to grow from $765.4 billion in 2019 to $1048.4 billion by 2024. The growing incidence of chronic diseases and the importance of generics along with the rising adoption of track and trace solutions and growth of the medical device industry are driving growth for this market.

Price Performance

In the past six months, shares of AmerisourceBergen have gained 8% and that of Walgreens Boots have increased 1.9% compared with the S&P 500 index’s rally of 19.4%.

Zacks Rank and Key Picks

Currently, AmerisourceBergen carries a Zacks Rank # 3 (Hold), while Walgreens Boots carries Zacks Rank # 5 (Strong Sell).

Some better-ranked stocks from the broader medical space include Invacare Corporation IVC and McKesson Corporation MCK, both carrying a Zacks Rank # 2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Invacare has a projected long-term earnings growth rate of 59.26%.

McKesson has a projected long-term earnings growth rate of 6.60%.

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AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report
McKesson Corporation (MCK) : Free Stock Analysis Report
Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
Invacare Corporation (IVC) : Free Stock Analysis Report
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