After what he called “the most difficult quarter” since Walgreens Boots Alliance was formed, Stefano Pessina may be leaning toward more than just executing partnerships as a way to grow the global drugstore chain and boost its battered stock price.
The Italian billionaire, who is Walgreens CEO and biggest individual shareholder, has long said he prefers partnerships rather than a large transformative acquisition. There’s been speculation dating back two years that Walgreens will buy the rest of giant distributor AmerisourceBergen Corp. that it doesn’t own or might acquire a health insurer like Humana, which already has a joint venture with the drugstore giant to develop senior health clinics.
But Walgreens hasn’t made a sizable acquisition since its $4.4 billion purchase of more than 1,900 Rite Aids and Wall Street appears to be getting restless. By comparison, CVS Health spent $70 billion to buy Aetna, the nation’s third-largest health insurer.
After being pressed on Walgreens quarterly earnings call by the noted J.P. Morgan analyst Lisa Gill, Pessina revealed the drugstore chain was reviewing some targets.
“We are constantly reviewing a certain number of companies,” Pessina said on a longer-than-usual 90-minute call Tuesday to discuss earnings. “Don’t ask me the names, I cannot give you the names. But of course, until now, we have not found the right numbers to do a combination with these companies.”
Wall Street is looking for results from Walgreens partnership strategy after the drugstore chain in the last three years has signed deals with Microsoft,the grocer Kroger, Humana and UnitedHealth Group’s urgent care business. For much of the last two years, such deals have been testing concepts and piloting healthcare services and technology to develop what executives have called the “drugstore of the future.”
But the partnerships won’t churn out profits for awhile.
“On the partnership front, for the first time (Walgreens) highlighted the multiple partnerships formed over the past few years probably will not be accretive to earnings until 2022, which is likely later than street expectations,” Mizuho Securities USA analyst Ann Hynes wrote this week.
Meanwhile, Pessina has said repeatedly for the last two years that he’s not going to execute a big merger or acquisition for the sake of doing one even though he said this week “some acquisition could be done mainly financing them through cash.”
“I can just give the same answer that I have given in the past,” Pessina said, responding to JP Morgan’s Gill. “We are open to any kind of partnership which makes sense, which is compatible with what we are doing, provided that the price is correct and provided that the organization of the company that we buy or that we merge is compatible with us because the prices are important. But also if you don’t have a compatible teams at the end, the merger will not work and you will not be able to deliver synergies.”
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