Walgreen Drops Cardinal Health for AmerisourceBergen Deal

Walgreen Co. and Alliance Boots GmbH agreed to have AmerisourceBergen Corp. handle their pharmaceutical distribution and gained the option to acquire a minority stake in the company.

The agreement with Chesterbrook, Pennsylvania-based AmerisourceBergen to distribute branded and generic pharmaceuticals will start in September and last 10 years, the companies said today in a statement. Cardinal Health Inc., whose contract with Walgreen to distribute drugs won’t be renewed, dropped the most since June 2009.

The partnership will reduce costs, provide daily delivery of drugs to stores and boost sales of cancer and other specialty medicines for Walgreen, which last year bought a 45 percent stake in Alliance Boots for $6.7 billion to create a global chain of pharmacies. Cardinal Health said its contract with Walgreen had generated 21 percent of revenue in fiscal 2012.

“It will make some of these high-cost, complex medications available” in stores, Walgreen Chief Executive Officer Greg Wasson told reporters today on a conference call. The AmerisourceBergen accord “is an improvement on our existing contract” with Cardinal Health and is projected to provide a modest boost to fiscal 2014 profits after one-time costs, he said.

AmerisourceBergen Stake

Walgreen, based in Deerfield, Illinois, climbed 5.4 percent to $44.74 at the close in New York for the biggest advance since July 19. AmerisourceBergen rose 3.6 percent to $50.06, the highest price since its initial public offering in 1995. Cardinal Health, based in Dublin, Ohio, slumped 8.2 percent to $42.35.

The accord allows Walgreen and Alliance Boots the option to purchase as much as 7 percent of AmerisourceBergen’s equity in the open market, plus equity warrants for 16 percent of the shares, according to the statement.

AmerisourceBergen will distribute branded pharmaceutical products that Walgreen currently sources from distributors and suppliers. In addition, generic pharmaceutical products that Walgreen presently distributes itself will be included in calendar-year 2014, according to the statement.

Walgreen today also reported second-quarter earnings that topped analysts’ estimates.

Net income in the period ended Feb. 28 rose 11 percent to $756 million, or 79 cents a share, from $683 million, or 78 cents, a year earlier, the company said. Excluding some items, profit was 96 cents a share. Analysts had estimated 93 cents on average, according to date compiled by Bloomberg.

Walgreen renewed a contract in July to provide Express Scripts Holding Co. customers with prescriptions, ending a standoff that caused it to lose shoppers to CVS Caremark Corp.

Before it's here, it's on the Bloomberg Terminal.