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Walgreen to spend $6.7 billion on stake in European drugstore chain

Published: Wednesday, June 20, 2012

Updated: Wednesday, June 20, 2012 09:06

Even so, the analysts said, the deal appears to be "a good strategic fit long-term."

The deal is the largest in Walgreen's history, surpassing its $1.1 billion purchase of the New York drugstore chain Duane Reade Inc. in 2010 and its $429 million acquisition of last year.

Its structure, which heaps an extra load of debt on the traditionally conservative company, led two leading ratings agencies, Standard & Poor's Ratings Services and Moody's Investors Service, to place Walgreen's debt ratings on watch for a downgrade.

Walgreen plans to pay Alliance Boots $4 billion in cash, a majority of which borrowed, and 83.4 million shares of its common stock, which equates to about $2.7 billion.

Wasson acknowledged the inherent risk in such a deal, but said Walgreen thinks "this has huge value-creating potential for shareholders on both sides ... and gives us time to thoughtfully plan to bring together and minimize that risk."

For Boots, a staple retailer in Britain for more than 160 years, it's the second major transaction in the last five years. Boots was taken private in 2007 for what was then $22 billion by Pessina and a New York-based private-equity firm Kohlberg Kravis Roberts & Co. The deal still ranks as the largest leveraged buyout ever in Europe.

Because the companies don't overlap geographically, neither expects to lay off any workers.

Further, Wasson said, the deal will help Walgreen accelerate its domestic strategy of transforming its stores into "health and daily living destinations," by expanding and enhancing its beauty products, a strength of Boots.

While the new entity is expected to retain both brand names, Walgreen said the company will be renamed to "reflect the strong heritage of both companies." It is expected to maintain its headquarters in Deerfield.

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