Walgreens truck (Photo credit: qnr)
Walgreen, the U.S.'s largest pharmacy chain, continued to expand last week after acquiring a 144-store strong regional drug retail chain, USA Drug, owned by Stephen L. LaFrance Holdings Inc., in a $438 million mostly-stock deal. The retail chain includes names such as USA Drug, Super D Drug, May’s Drug Stores, Med-X Drugs and Drug Warehouse and has a major presence in mid-Southern United States. The 144 stores posted sales of about $825 million in 2011.
The purchase comes quickly after Walgreen’s mega acquisition of 45% stake in the European drugstore giant Alliance Boots for $6.7 billion, with an option to increase the stake to 100% by 2015. Walgreen acquired online drug retailer drugstore.com in March 2011 for $429 million and Duane Reade in 2010 for $1.2 billion. Walgreen competes with CVS Caremark and Rite Aid in the U.S.
Acquisitions Could Add Weight to Negotiations with Pharmacy Benefit Managers
Although the deal is much smaller compared to Walgreen’s size (Walgreen currently operates 8,359 stores) and its recent trans-Atlantic acquisition of Alliance Boots, it could provide the company more leverage in dealing with pharmacy benefit managers like Express Scripts by adding weight to its market share in the several markets in mid-Southern U.S.
After Express Scripts, the largest pharmacy benefits manager in the U.S., merged with another big PBM, Medco Health Solutions, in April this year, large drug retailers were expected to attempt some consolidation as a way to regain some of their bargaining power. Earlier, there had been speculation regarding Walgreen’s intentions to attempt a take-over of Rite Aid, the third largest drug retailer in the U.S.
Walgreen parted ways with Express Scripts last year after the two failed to renew their contract for 2012 over disagreement on the reimbursement rates. Express-Medco together control more than 35% PBM market share today, and the consolidation has further added to their pricing power. There have also been concerns about the risk of Walgreen losing more prescription business from Medco (Walgreen filled 125 million prescriptions for Medco clients in 2011) after the current contracts expire. Walgreen filled 10% fewer prescriptions this year due to the loss of Express Scripts’ business and stands to lose up to 80 million prescriptions worth $4 billion in revenue this year.
We currently value Walgreen with a $34 Trefis price estimate of its stock, 15% ahead of the current market price.
Understand How a Company’s Products Impact its Stock Price at Trefis
Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.
