Walgreen acquires 45% stake in Alliance Boots for $6.7B in cash, stock

Walgreen (WAG) and Alliance Boots announced that they have entered into a strategic transaction. Walgreens will invest $6.7B in cash and stock, comprised of $4B in cash and 83.4M shares, in exchange for a 45% equity ownership stake in KKR's (KKR) Alliance Boots. Walgreens will have the option to proceed to a full combination by acquiring the remaining 55% of Alliance Boots in approximately three years’ time. At the current Walgreens share price, the second step of the transaction would be valued at approximately $9.5B in cash and stock, plus the assumption of Alliance Boots then-outstanding debt. Completion of the initial investment, which is subject to various regulatory approvals, is expected to take place by September 1. The boards of directors of Walgreens and Alliance Boots have unanimously approved the transaction. The transaction is expected to be accretive to Walgreens net earnings per diluted share in the first year following completion of the initial step of the transaction, by approximately 23-27c, excluding one-time transaction costs. Walgreens expects combined synergies across both companies to be between $100M-$150M in the first year and $1B by the end of 2016. Walgreens plans to finance the cash payment deliverable at the initial closing through existing cash and new borrowings.