RayJay: Walgreens Could Acquire Drug Distributor AmerisourceBergen

Given the climate of mergers and acquisitions within the pharmacy space in recent years, Walgreens Boots Alliance Inc WBA has been quiet on the merger front.

The Analyst 

Raymond James analyst John Ransom said Tuesday that Walgreens may soon cave to the pressure to make a strategic move.

The Thesis 

Two rumored  buyout targets for Walgreens are AmerisourceBergen Corp. ABC and Laboratory Corp. of America Holdings LH. Ransom said there are pros and cons to each option. (See his track record here.) 

“Our analysis estimates that the LH deal would be less complicated, as the ongoing opioid litigation overhang is unknowable, but much less accretive; +4% for an LH deal vs. +16% for ABC,” the analyst said. 

AmerisourceBergen declined to comment on the Raymond James note when contacted Tuesday by Benzinga. 

Walgreens already has a 26-percent ownership stake in AmerisourceBergen, and Raymond James estimates a merger could create roughly $500 million in synergies.

Given the ongoing regulatory and legal actions related to opioids, Ransom said he estimates that AmerisourceBergen will ultimately be on the hook for roughly $2 billion in fines.

It’s unlikely Walgreens shareholders would be particularly excited about a AmerisourceBergen buyout, given the outlook for materially fewer independent pharmacies, the analyst said. 

At the same time, Ransom said a buyout of Laboratory Corp. makes less financial sense given that aggressive synergy projections still come out to only about $150 million.

It's unclear as of now that Walgreens intends to expand into primary care, according to Raymond James. 

Price Action 

The longer Walgreens’ shares flounder, the more pressure management may feel to make an aggressive play. Walgreens stock is now down 32.6 percent overall in the past three years.

Walgreens shares were trading higher by 1.65 percent at the time of publication Tuesday; AmerisourceBergen shares were up 1.69 percent; and Laboratory Corp. shares were higher by 1.96 percent. 

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