FINANCE

Walgreens keeping headquarters in U.S.; acquires remainder of Alliance Boots

BY Michael Johnsen

Deerfield, Ill. — Walgreens on Wednesday said it has exercised its option to buy the remaining 55% of European pharmacy retailer and wholesaler Alliance Boots in a $15.26 billion deal that will keep the drug store chain’s corporate tax headquarters in the United States. Walgreens said it is not in the best long-term interest of its shareholders to re-domicile outside the United States.

This action follows the launch of the companies’ long-term strategic partnership in June 2012, when Walgreens acquired a 45% equity ownership in Alliance Boots, with the option to proceed to a full combination by acquiring the remaining 55% of Alliance Boots in three years’ time. Walgreens expects to close the transaction in the first quarter of calendar 2015.

Walgreens also announced a series of decisions related to its most recent move, including:

• A new holding company to be formed in connection with the transaction will be named Walgreens Boots Alliance, and will include four divisions: Walgreen Co. (the largest drug store chain in the United States); Boots (the U.K. and Republic of Ireland’s leading pharmacy-led health and beauty retailer); Pharmaceutical Wholesale and International Retail (including Alliance Healthcare, Europe’s largest pharmaceutical wholesaler); and Global Brands. In addition, the combined company is establishing a cross-divisional global pharmacy market access group;

• Upon closing, the combined enterprise will blend senior management from both companies, including Walgreens president, CEO and board member Greg Wasson who will be president and CEO of Walgreens Boots Alliance, and Stefano Pessina, executive chairman of Alliance Boots, who will be executive vice chairman of the combined company responsible for strategy and M&A reporting to Wasson, and chairman of a new strategy committee of the board of directors;

• Jim Skinner will serve as the non-executive chairman of the board of directors for the combined company;

• The Walgreens Boots Alliance holding company will be headquartered in the Chicago area, while Walgreens operations will remain headquartered in Deerfield, Ill. Boots operations also will remain headquartered at its current location in Nottingham, U.K.;

• The company is outlining a new three-year “Next Chapter” plan through fiscal 2017 that sets strategic goals for the combined company. The plan reflects significant value-creating opportunities for the combined enterprise to drive long-term shareholder value; and

• In conjunction with its strategic plan, the company is establishing a new adjusted earnings per share goal for fiscal 2016 of $4.25 to $4.60.

Walgreens Boots Alliance combines two leading companies with iconic brands, complementary geographic footprints, shared values and a heritage of trusted healthcare services through pharmaceutical wholesaling and community pharmacy care, dating back more than 100 years each. Combining the companies will create a pharmacy-led health and well-being retailer with more than 11,000 stores in 10 countries and a portfolio of retail and business brands, as well as increasingly global health and beauty product brands. The full combination also will establish the world’s largest pharmaceutical wholesale and distribution network with more than 370 distribution centers delivering to more than 180,000 pharmacies, doctors, health centers and hospitals in 20 countries, according to Walgreens. Walgreens Boots Alliance also will be the world’s largest purchaser of prescription drugs and many other health and well-being products.

“We are excited to move forward with the next important step in becoming a new kind of global healthcare leader,” Wasson said. “Expanding globally with Alliance Boots will make quality health care more affordable and accessible to communities here in America and around the world. In addition, Stefano and I are pleased with the comprehensive plan we’ve announced today as part of Step 2. These elements will provide additional shareholder value creation, both in the near and long term. I congratulate our teams for getting us to this point and together we have a bright future.”

Leading Walgreens Boots Alliance will be a top management team led by Wasson and consisting of senior executives from both companies. In addition to Wasson’s and Pessina’s roles, the following appointments are being announced:

• Ornella Barra, chief executive wholesale and brands of Alliance Boots, will become executive VP of Walgreens Boots Alliance and president and chief executive of global wholesale and international retail;

• Jeff Berkowitz, president of Walgreens Boots Alliance Development, will serve as executive VP of Walgreens Boots Alliance and president of pharma and global market access, which will include responsibility for specialty pharmacy;

• Alex Gourlay, Walgreens president of customer experience and daily living, will become executive VP Walgreens Boots Alliance and president of Walgreens;

• Tim McLevish, previously announced as Walgreens executive VP and CFO, will serve in that role in a global capacity for Walgreens Boots Alliance;

• Ken Murphy, managing director of Health & Beauty International and Brands of Alliance Boots, will serve as executive VP of Walgreens Boots Alliance and president of global brands;

• Simon Roberts, managing director of Health & Beauty, U.K. and the Republic of Ireland of Alliance Boots, will serve as executive VP Walgreens Boots Alliance and president of Boots;

• Tom Sabatino, Walgreens chief administrative officer and general counsel, will serve as executive VP and global chief legal and administrative officer of Walgreens Boots Alliance;

• Tim Theriault, chief information, innovation and improvement officer at Walgreens, will assume the role of executive VP and global chief information officer of Walgreens Boots Alliance; and

• Kathleen Wilson-Thompson, Walgreens chief human resources officer, will become executive VP and global chief human resources officer of Walgreens Boots Alliance.

“In line with our fiduciary duty to the company and our shareholders, we undertook an extensive and rigorous analysis with a team of leading experts to determine the most optimal — and sustainable — course of action,” said Wasson. “We took into account all factors, including that we could not arrive at a structure that provided the company and our board with the requisite level of confidence that a transaction of this significance would need to withstand extensive IRS review and scrutiny. As a result the company concluded it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the United States. The board did, however, believe accelerating the option to exercise Step 2 was in the best interest of our shareholders, and with this decision, we are now moving forward on an accelerated basis to create the global leader in pharmacy-led health and well-being.”

With the full combination, Walgreens Boots Alliance will be positioned for a new era of profitable growth and is aggressively pursuing future opportunities to drive sustainable shareholder value over the long term. To do so, the company is launching a new three-year “Next Chapter” plan that will maximize the scope and scale of the new combined company. Through the plan, core business performance will be accelerated by providing:

• A differentiated retail experience that transforms the retail model for health-and-wellness and changes the way women shop for beauty;

• Integrated pharmacy and health care that advance the role of pharmacists and provide access to innovative healthcare services; and

• Global pharmaceutical services that reinvent the pharmaceutical value chain and deliver a seamless specialty pharmacy model.

“This is a pivotal moment in Walgreens history as we venture ahead from the best corners in America to the four corners of the world,” said Wasson. “In a changing global marketplace with new opportunities and challenges, we will serve our communities, our country and the world in ways we could never have imagined even a few years ago.”

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SUPPLY CHAIN

Four Ways Cloud-Based Collaboration Can Help Retailers

BY CSA STAFF

By Jerome Malavoy, CEO and Founder, Trace One

It’s official. The cloud is here and it is not going away any time soon. Seventy percent of respondents to KPMG International’s Global Cloud Survey believe that the cloud is delivering efficiencies and cost savings today. Retailers have much to gain from moving to the cloud, and with the growing global marketplace, collaboration is one of the greatest advantages the cloud offers retailers. In fact, cloud-based collaboration can lead to several operational improvements for retailers involved in the private label market, including increased:

1. Transparency. Retailers need to be able to communicate with all partners in their supply chain, including manufacturers and suppliers. This requires a means of constant communication and the sharing of real-time information about products at all stages of development, from raw materials to the stores that receive the final products. Cloud-based collaboration enables this communication and information sharing by offering a central location for partners to connect. This gives retailers complete visibility into the supply chain, which in turn helps cut costs, reduce revenue leakage, save time and manage risk. Moreover, retailers with enhanced supply chain visibility are better positioned to avoid potential crises.

2. Consumer trust. With food contamination and product recalls making headlines on a regular basis, retailers are paying more attention to consumer trust and the reputation of their brands. With the visibility that cloud-based collaboration provides, retailers can easily access and share information about a product’s safety and quality with consumers, thereby increasing consumer confidence and brand loyalty. Retailers benefit from providing this information to customers online and with labels like “gluten-free,” “100% organic” and “non-GMO.” By making it easy for consumers to access key information about the products they consume, retailers experience increased sales and greater brand loyalty.

3. Compliance. One of the most apparent and important benefits of cloud-based collaboration is compliance. The increased communication that results from cloud-based collaboration makes it easier for retailers to ensure that their products and the processes through which they are created comply with supply chain and industry regulations. Imagine reaching out to each partner individually to obtain the appropriate documentation to certify compliance and ensure adherence to the constantly evolving deluge of rules, regulations and standards. Verifying compliance can quickly become a time intensive and tedious procedure – especially when dealing with global supply chain partners. At Trace One, we’ve found that the ability to collaborate via the cloud allows retailers and their partners to upload important documents like factory audits to a central, secure and easily accessible location at their convenience, significantly streamlining the process for maintaining compliance.

4. Efficiency or production cycles. In addition to compliance, cloud-based collaboration expedites product development processes across the board. In fact, nearly 40% of respondents to a recent survey conducted by Trace One said their organizations are 30% or more productive because of collaboration. Collaboration can help reduce time-to-market by streamlining processes and eliminating wasteful redundancies. Collaborating in a cloud-based platform makes it easier for all parties to see plans, designs and other important documentation, all in one place. As retailers across the globe know, tight deadlines are commonplace and missing those deadlines can cost a significant amount of money, cutting into the bottom line.

Occasionally, technologies come along and change the way business is done. There is no denying that the cloud era is upon us – it is no longer something just for savvy, early adopters. The scalability and flexibility of the cloud is drastically changing business practices across industries, and retail is no exception. Fortunately, the flexibility and visibility with the cloud makes it an ideal environment to foster retailers’ highly collaborative efforts. While the cloud requires an evolution – and saying farewell to legacy solutions – retailers who adopt cloud-based collaboration tools for their private label supply chain communications will undoubtedly benefit from greater transparency, consumer trust, compliance and efficiency – all key factors in a retailer’s bottom line.


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FINANCE

Acquisition costs hit Vitamin Shoppe profit; 60 new stores planned

BY Dan Berthiaume

North Bergen, N.J. – Vitamin Shoppe Inc. reported net income of $16.9 million in the second quarter of fiscal 2014, down 8% from $18.3 million in the same quarter a year earlier. Expenses related to Vitamin Shoppe’s March 2013 purchase of Super Supplements chain helped reduce the retailer’s net income.

Vitamin Shoppe plans to open approximately 60 new stores in 2014. Total net sales in the second quarter increased 10% to $306.2 million, compared to $279.5 million in the same period of the prior year. The retailer attributed its improved net sales to same-store sales growth of 4%, as well as growth in non-same-store sales, e-commerce sales and manufacturing revenue.

Vitamin Shoppe’s board has approved a share repurchase program that enables the company to purchase up to $100 million of its shares of common stock in the next three years. Shares will be repurchased from time-to-time in the open market or in privately negotiated transactions. Looking ahead, Vitamin Shoppe expects higher same-store and e-commerce sales growth in 2014.

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