Despite repeated statements by Walgreens Boots Alliance executives that they don’t have to spend on a big transformative acquisition, speculation won’t subside regarding potential targets of the global drugstore chain.
Take a report that emerged this week resurrecting talk that Walgreens may buy the rest of giant distributor AmerisourceBergen Corp. that it doesn’t already own or might acquire diagnostic testing firm LabCorp, which is opening hundreds of patient service centers at Walgreens stores over the next few years.
“We think that the temptation to do ‘something’ will grow over time,” Raymond James analyst John Ransom and colleagues wrote in a report Tuesday afternoon that pointed to AmerisourceBergen and LabCorp as potential acquisition targets.
Walgreens hasn’t made a sizable acquisition since its $4.4 billion purchase of more than 1,900 Rite Aids. By comparison, CVS Health spent $70 billion to buy Aetna, the nation’s third-largest health insurer though that merger is still being dogged by a federal judge in Washington.
On the company’s quarterly earnings call a month ago, Walgreens CEO Stefano Pessina said executives are “constantly reviewing a certain number of companies.”
“Don’t ask me the names, I cannot give you the names,” Pessina, who is also Walgreens biggest individual shareholder, said in April in response to another analyst question. “But of course, until now, we have not found the right numbers to do a combination with these companies.”
Some see LabCorp as a good fit. Walgreens’ effort to provide lab-testing services in its stores is part of an ongoing transformation into becoming more of a healthcare services company than a retailer. And Walgreens tried to bring diagnostic tests to its stores in Arizona via its Theranos partnership, but that deal turned out to be a high profile debacle following investigations into the accuracy of Theranos blood tests and former Theranos CEO Elizabeth Holmes.
“From a strategic perspective, the ability to create a more healthcare-centric model by bringing the lab business into the Walgreens store is appealing, though owning a CRO is likely not something a retail pharmacy is interested in,” Raymond James’ Ransom wrote. “Further, we remain unclear how aggressively (Walgreens) plans to move into primary care.”
But Walgreens executives have said the drugstore chain is very much committed to primary care but has yet to settle on one model. Less than a month ago, Walgreens announced a partnership with primary care provider VillageMD in Houston where clinics will be opened next to drugstores as a precursor to a potential national rollout.
Walgreens also has a joint venture with the health insurer Humana to develop senior health clinics. For the last two years, such partnerships have been testing concepts and piloting healthcare services and technology to develop what executives have called the “drugstore of the future.”
“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,” Pessina said last month. “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.”
Date: May 17, 2019