Walgreens’ Takeover Of Amerisource Will Not Yield A Competitive Advantage; Analysts

According to analysts the potential takeover deal of AmerisourceBergen by Walgreens will lead to the retailer boosting cash flow as well as increasing its presence in the specialty pharmacy market. However the deal will not contribute to Walgreens’ competitiveness in the U.S. healthcare sector which is rapidly evolving.

Analysts also noted that such a deal would have an opportunity cost down the line for Walgreens Boots Alliance as it tries to compete with CVS Health. The latter is preparing to acquire Aetna Inc, a health insurer, in a deal that is expected to result in a dominant consumer healthcare giant thus widening the reach of CVS.

Specialty pharmacy market

But Walgreens’ takeover of AmerisourceBergen will not bring such an advantage. Walgreens always owns a 26% stake in the drug distributor. However Walgreens would get to increase its share of the specialty pharmacy market and thus in a better position to compete against Express Scripts Holding Co, a pharmacy benefits manager and CVS.

“As the broader healthcare sector focuses more on moving specialty drug administration out of facility-based (hospital/physician’s office) settings, gaining a strong foothold in specialty through ABC could be a valuable strategic move,” wrote Brian Tanquilut, an analyst at Jefferies.

Five years ago Walgreens and AmerisourceBergen struck a ten-year agreement which allowed the latter to purchase drugs for the former, the biggest drugstore operator in the United States.

Cost savings

According to West Monroe Partners’ mergers and acquisitions director, Brad Haller, the cost savings that Walgreens is likely to generate after taking over the drug distributor will not be achieved immediately since the drug store operator is still integrating with Rite-Aid and Boots Alliance. Four years ago Walgreens acquired Alliance Boots and last year the drug store operator announced it would be purchase close to 2,000 Rite-Aid retail outlets.

The potential deal between Walgreens and AmerisourceBergen comes at a time when the healthcare landscape in the United States is looking unpredictable with the changes that were enacted in the Affordable Care Act having resulted in escalating drug prices. Amazon is also said to be considering an entry into the sector further intensifying the competitive pressures.

For a long time analysts have been speculating that the entry of Amazon into the healthcare sector would be highly disruptive as the online retail giant would cut deals with hospitals, insurers and drug distributors. The B2B marketplace of Amazon, Amazon Business, already stocks hospital consumables and professional medical products.