Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Some things are just inevitable. Seasons change. Marvel releases superhero movies. Walgreens thinks about buying Express Scripts. 

The idea of the pharmacy mega-chain buying America's largest pharmacy benefit manager (PBM) is one of the longer-running will-they/won't-they deals in health care M&A. Walgreens CEO Stefano Pessina squirted a bit of lighter fluid on the coals on Thursday, after being asked on the company's earnings call if it wanted to buy a PBM. "I couldn't have been clearer since the very beginning," Pessina said on the call. "I have seen this market and I am really convinced that vertical integration is a necessity."

Safe Port in a Storm
On a hideous day for markets, Walgreens' earnings and M&A musings boosted its shares.
Source: Bloomberg
Intraday times are displayed in ET.

In other words, Walgreens needs to stake more territory across the broader health-care universe. It's hard to think of a deal that would fulfill that mandate more than a combination with Express Scripts.

Pessina noted Walgreens had done two major deals in less than a year and needs to consider how much more it can digest right now. Still, though it may not happen right away, an Express Scripts bid seems in the cards -- and rightly so. 

Walgreens, the biggest U.S. pharmacy chain, has been an aggressive dealmaker, buying a 45 percent stake in Alliance Boots in 2012, then combining fully at the end of 2014. It now intends to buy Rite Aid for $9.4 billion, a deal it hopes will close in the second half of this year. Still, it has relied on partnerships to break into other businesses in the U.S.

Rival CVS Health, in comparison, owns the second-largest U.S. PBM and an array of other businesses throughout the health-care supply chain. Since CVS entered the PBM business in 2007 with its purchase of Caremark, its shares have outperformed Walgreens by more than 90 percent. Walgreens' Rite Aid deal gives it access to a PBM, EnvisionRX, but it's a minnow compared to Express Scripts and CVS.

Winning the Race
CVS has expanded beyond the pharmacy and outperformed.
Source: Bloomberg

Rite Aid may boost Walgreens' retail business, but an Express Scripts deal would capture more revenue and market power in its faster-growing pharmacy business:

Pharmacy For the Win
Retail sales have been a laggard for Walgreens.
Source: Bloomberg

As Pessina noted in the earnings call, there's growing pressure across the U.S. health system to control costs -- a specialty of PBMs such as Express Scripts.

Right now, Walgreens has a manageable net debt/Ebitda ratio of 1.73, according to Bloomberg data, and its debt is structured for flexibility. Buying Rite Aid will add to its leverage. And Express Scripts won't come cheap: It's currently valued at nearly $60 billion, and the stock has gained 59 percent over the past three years. Express Scripts recently raised expectations for 2016 and has made a point of emphasizing it thinks it works very well as a standalone business, thank you very much. As promising a target as Express Scripts looks, it's easy to imagine Walgreens overpaying. 

But if Walgreens wants to be much more than a storefront in the U.S., it's going to take more than half measures. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Max Nisen in New York at

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