Proxy Adviser Backs Proposed Merger Between Walgreen, Alliance Boots

By Maria Armental 

Institutional Shareholder Services Inc. on Friday backed Walgreen Co.'s proposed $14.7 billion takeover of U.K. drugstore chain Alliance Boots, citing the combined company's savings potential and greater ability to control rising prices of generic prescription drugs.

The pharmacy chain--which currently owns 45% of Alliance Boots-- shocked investors in August when it slashed its long-term profit projection saying it had failed to account for a spike in the price of some generics that it sold under annual contracts with Medicare.

Last year, Walgreen and Alliance Boots--the largest retail pharmacies in the U.S. and Europe, respectively-- reached a 10-year distribution deal with wholesaler AmerisourceBergen Corp. to negotiate better prices with pharmaceutical companies.

A combined company, the proxy adviser said, would have greater leverage at negotiations.

By merging operations, the companies estimate they will save about $191 million next year with savings growing incrementally on an annual basis. In 2018, the companies estimated they would save about $1.12 billion, or more than 1% of the combined company pro forma operating expenses for the year ended Aug. 31, 2014, the proxy adviser said.

CtW Investment Group, an arm of labor federation Change to Wing, has urged shareholders to reject the proposal, calling the deal overpriced and unnecessary.

The group represents union pension funds that own about 2.5 million shares, or 0.3%, of Walgreen.

Shareholders are scheduled to vote on the deal at a Dec. 29 special meeting.

Alliance Boots operates more than 4,600 drugstores in more than two-dozen countries. Walgreen bought its 45% stake in the company in 2012 in a $6.7 billion cash-and-stock deal.

Walgreen operates more than 8,200 drugstores in the U.S., Puerto Rico and the U.S. Virgin Islands.

Walgreen shares, largely flat in recent after-hours trading, closed at $74.50 on Friday, up 30% for the year.

Write to Maria Armental at [e-mail]

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