The largest drugstore operator in the U.S. Walgreens Boots Alliance Inc. has approached AmerisourceBergen Corp, the drug distributor, reported the Wall Street Journal Monday, detailing an agreement that would speed up the consolidation of the healthcare sector.
Shares of AmerisourceBergen rose by 15.7% in trading afterhours on Monday, while Walgreens, which has close to 13,000 drugstores across the globe, with most in the U.S., saw its shares remain unchanged.
Walgreens has a value of $67.81 billion, while the market capitalization of AmerisourceBergen is $19.65 billion.
Pharmacies and healthcare payers have been responding to a shifting landscape that includes changes in the Affordable Care Act in the U.S. rising prices for drugs and a threat of more competition from retailers on line such as e-commerce giant Amazon.com.
A deal if completed by Walgreens would come following the acquisition for $69 billion of Aetna Inc. the health insurer by CVS Health Corp, a rival in the drugstore sector and would reflect the move toward more vertical consolidation as members along the supply chain begin combining.
Representatives of CEO at Walgreens Stefano Pessina reached out at a high-level to representatives from the CEO at AmerisourceBergen Steven Collis a number of weeks ago, said the WSJ report that cited people who are familiar with the situation.
AmerisourceBergen did say that it does not discuss any possible mergers or acquisitions, while Walgreens could not be reached for comment.
Both companies are closely allied already, having entered in 2013 a deal of 10 years for AmerisourceBergen to purchase Walgreens’ drugs. Walgreens subsequently purchased a stake of 26% in the distributor.
Walgreens would acquire the remaining shares in a deal that is being considered, but no official offer has been made, and the WSJ reports said there was a possibility a deal would not be reached.
The drugstore chain operator in 2017 accounted for 30% of the revenue at AmerisourceBergen and is the company’s single largest customer.
Walgreens in January reported its sixth consecutive quarterly drop in same-store sales at the retail level for its 2018 fiscal first quarter, as well as a drop in the gross margins of its business based in the U.S.
AmerisourceBergen last week reported a jump of three fold in its quarterly profit to end the three-month period at $861.8 million helped by a tax benefit of $587.5 million.
The potential deal to acquire AmerisourceBergen could be funded in all or most of its through debt, likely making the financial returns attractive.