Walgreens Chief Pessina Signals More Deals Are on the Way

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Walgreens Boots Alliance Inc.’s acting Chief Executive Officer Stefano Pessina isn’t being shy about his ambitions to do more deals, mere months after taking the helm of the biggest U.S. drugstore chain.

On a conference call with analysts Thursday, he outlined options that include a buyout of a company in the drug-distribution supply chain or a joint venture with a partner. Express Scripts Holding Co.’s shares closed up 4.9 percent to $88.47, a record, in New York, as investors interpreted Pessina’s deal comments as a possible overture for the drug-benefits provider, Evercore ISI analyst Ross Muken said.

Walgreens is the only major U.S. retail pharmacy chain that doesn’t own a pharmacy benefit manager like Express Scripts. Such companies negotiate with drugmakers on prices for medications obtained through insurance coverage. CVS Health Corp. bought Caremark RX Inc. in 2007 to enter the business, and Rite Aid Corp. agreed this year to acquire EnvisionRX.

Express Scripts spokesman David Whitrap declined to comment. Walgreens shares rose 5.6 percent to $92.62.

The market appears ripe for another round of consolidation to take costs out of the complicated drug distribution business in the U.S., Pessina told investors on the call after the company reported second-quarter earnings that beat analysts’ estimates.

“The complex structure of delivering the medicines to the patients will have to be rationalized, and as a consequence it’s easy to believe we will have additional synergies coming from M&A activities,” he said. “We want to be -- as we have been in the past -- at the forefront of changes and so if these needs for consolidation will be confirmed, we will try to be part of it.”

Cold Water

His comments may indicate Walgreens is leaning more toward a deal in the industry of buying and distributing drugs than toward a merger with a direct competitor like Rite Aid, which has been the subject of speculation in recent weeks. Walgreens said Thursday it will close 200 U.S. stores this year to cut costs, throwing cold water on the idea that Pessina is eager to gain more locations.

One hint into Pessina’s strategy is the strategic relationship Walgreens entered in 2013 with AmerisourceBergen Corp., the second-biggest U.S. drug distributor. On the conference call Thursday, the acting CEO cited the alliance, which gave Walgreens the option to acquire a minority stake in the distributor, as an example of the type of “innovative partnership” he’d like to do.

AmerisourceBergen Deal

“They’re rationalizing their own store base, they’re loving the deal they did with AmerisourceBergen and they’re talking about enhancing the supply chain with M&A,” said Tony Scherrer, director of research at Seattle-based Smead Capital Management, which oversees $1.4 billion and owns Walgreens stock. “If they’re doing that, then perhaps a Rite Aid deal would be less likely than what people had been thinking.”

Walgreens spent $15.3 billion to buy the rest of Alliance Boots in August, after previously controlling about 45 percent of the Swiss company. Pessina built Alliance Boots through more than three decades of mergers before selling it to Walgreens.

While the integration of the two companies continues, it won’t prevent the company from doing more deals, Pessina said. Deals or joint ventures typically take months to come to fruition anyway, he said. Walgreens executives said mergers are a top priority for the company’s cash.

While he hunts for deals, Pessina is also looking for a new leader for Walgreens. The company announced in December its CEO Greg Wasson, 56 at the time, would retire upon the closing of the deal. Pessina, who is also executive vice chairman and the biggest shareholder of Walgreens, is acting CEO while the company selects Wasson’s replacement.

(An earlier version of this story corrected Pessina’s title.)

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