Boots says Walgreens deal should not mean staff cuts

Big cost savings in £10bn takeover by US giant will come from economies of scale, chairman insists

Stefano Pessina, the executive chairman of Alliance Boots, mounted a vigorous defence yesterday of his plans to sell the high street chemist and pharmaceuticals giant to the US drugstore chain Walgreens in a cash and shares deal worth $16.2bn (£10bn).

Citing cost savings of $150m over the next four years, the Italian billionaire also moved quickly to reassure Alliance Boots' 75,000 staff in the UK over the company's future following the "transformational deal". This will initially see Walgreens, America's biggest pharmacy chain with nearly 8,000 shops, acquire 45 per cent of Alliance Boots' equity for $6.7bn, comprising $4bn in cash and 83.4 million shares.

"How could I do a deal to kill Boots?" Mr Pessina said, adding: "I have done a deal to make Boots more visible, more international, to create a lot of new markets for Boots and for [the manufacturing and research and development site] Nottingham."

The initial transaction is expected to be completed by 1 September and Walgreens has the option to buy the remaining 55 per cent of the equity in Alliance Boots within two and a half years. Based on the current share price of Walgreens, the second step of the transaction is valued at $9.5bn.

The agreement, which is backed by both companies' boards, will create a retail pharmacy and wellbeing behemoth with more than 11,000 stores in 12 countries, as well as the world's biggest pharmaceuticals wholesaler. With a total workforce of 360,000, the combined company's network of more than 370 distribution centres will serve more than 170,000 pharmacies, doctors, clinics and hospitals in 21 countries.

The $16.2bn deal, which will see Walgreens take on Alliance Boots' £7bn of net debt, is the latest dramatic twist in the history of the Switzerland-based company. It follows the record £11.4bn highly leveraged deal – backed by the private equity giant KKR – that pulled Alliance Boots off the stock market in 2007. Alliance Boots, which has more than 3,300 retail stores globally, was formed in 2006 by the merger between Boots Group and the pharmaceuticals company Alliance Unichem.

Mr Pessina, who owns about a third of Alliance Boots, will initially account for about 8 per cent of Walgreens' shares but he will not take any cash out of the business. He said: "I am just taking shares personally. I am not looking for money, I am looking to be part of the leading player in this industry". Once the deal is completed, he is expected to become Walgreens' biggest shareholder. In contrast, KKR will pocket a bumper cash payment, but it too will remain an investor in the business.

Walgreens expects the deal to be earnings enhancing from the start, citing cost savings of up to $150m inside the first year and $1bn by the end of 2016, such as through economies of scale on the procurement of prescription drugs and over-the-counter products.

Given the "complementary" geographic footprints of the two companies, Walgreens said there were "no plans for job reductions at either company as a result of the transaction".

Alliance Boots said the biggest opportunity from the deal was the chance to sell brands, such as its No 7 cosmetics, in Walgreens stores.

Wallgreens v Boots

Drugstores: 7,890 v 3,330

Locations: 50 US states v 25 countries

Employees: 247,000 v 116,000

Sales: $72.2bn (£46bn) v £25.4bn

Market value: $26.3bn$16.2bn

How the Boots and Walgreens tale evolved

1849 John Boot opens his herbal medicines shop in Nottingham

1901 Charles R Walgreen Snr opens drugstore in Chicago

1920 John Boot's son Jesse sells the business to America's United Drugs Company; the family will buy it back in 1933

1922 Walgreens invents the chocolate malted milkshake

1968 Boots acquires the rival 622-strong Timothy Whites and Taylors Ltd chain

1984 Walgreens opens 1,000th store

1991 Boots buys Halfords, the bicycles and car parts business, selling it in 2002. It also creates and sells Do-It-All

1994 Boots sells drug- making business to BASF

2005 Boots merges with Alliance UniChem

2007 Alliance Boots taken private in an £11.4bn deal backed by Stefano Pessina and KKR

2010 Row breaks out after Alliance Boots moves headquarters to Zug in Switzerland, slashing its UK corporate tax bill

2010 Walgreens buys New York drugstore chain Duane Reade for $1bn

2012 Walgreens agrees £10bn deal to buy Alliance Boots over the next three years