wagabppt.htm - Generated by SEC Publisher for SEC Filing


 

1

 

 Vote Against Approval of Issuance of Shares (Item 2)

to Complete Acquisition of Alliance Boots

at December 29, 2014 Special Meeting

of Walgreen Shareholders

 



 

                                                                                                                                                                                                      3

CEO Wasson out, AB’s Pessina in! What Just Happened?

 

 

 

 


 

                                                                                                                                                                                                                   4

Paying for the privilege of being taken over.

 

 

 

 


 

                                                                                                                                                                                                                          5

Why vote AGAINST the full takeover of AB?

 

 

 

 


 

                                                                                                                                                                                                                          6

Alliance Boots: Looking under the hood shows sand in its growth engine

             Europe > 90% of total
             Wholesaling = 67% of total


 

7

Deal Overview: Selected Timeline of Walgreen’s Complex and Unstable Transaction



 

8

Deal Overview: The unusual two-step business combination failed to give investors timely vote

Transaction Date Deal Term Consideration Governance
 
 
Joint venture, Aug 2012 “Step 1” $4.0B cash Pessina & Murphy
equity swap     83.4 M shares (KKR) join WAG’s
(45% stake in       board; hold 7.7% and
AB)       ~0.7% respectively
 
Full Acquisition Pending “Step 2” $4.9B cash ~16 to 20% ownership
      144 M shares Pessina Exec Vice
      (AB’s Debt) Chair

 



 

 
    2012 Projections     2014 Realities  
2016 operating profit $ 9 - $9.5B   $ 7.2 B
 
Combined debt $ 11 B $ 17.9 B
Total cost of deal $ 28.9 B $ 35.7 B
EV/EBITDA (2015)   11.5 x   14.8 x
AB’s annual operating   9 %   4.4 %
income growth            

 


 

  10
Deal Overview:  
Market reaction to deal ambivalent  

 

Walgreen’s share price has benefitted from a bull market, and has tracked a similar trajectory to close competitor CVS since the transaction was announced.



 

11

Acquisition Unnecessary: Paying for Pessina’s Empire Building, not for Synergies

  • Synergies to date are procurement from purchasing JV.
      o     

    Probably a “majority” of procurement synergies can occur without second-step, according to Walgreen CFO.

     

  • Top two competitors have opted for the capital light approach of procurement joint ventures.
         o      CVS JV with Cardinal
         o     

    Rite Aid JV with McKesson

     



     

    12

    Acquisition Overvalued: Excessive premium the road to buyer’s remorse

     

     

     



     

    WAG is Paying EV/EBITDA Forward Multiple for 13 

    Step 2 Far in Excess of Comparables


    Mid-point valuations of fairness opinions provided by Goldman Sachs and Lazard compared to second step transaction cost based on consideration valued at $13.96 billion (based on Aug. 11. 2014) and expected debt.


     

              WAG is Paying up to a 93% Premium for Remaining Equity of AB                   14

                                                                                        OVERVALUED:  COST OF STEP 2 EQUITY

                                                      Blue = Cost to WAG shareholders           Red = Goldman Sachs          Green = Lazard

    Due to AB’s privately-held status, the premium over and above market value is not available from per-share data. Using the midpoint valuations performed by Lazard and Goldman Sachs pursuant to the three valuation methodologies, we illustrate the takeout premiums using a second-step consideration value of $13.96 billion (based on Aug. 11. 2014 valuation date).


     

    15

    The Deal is Risky: Threats to Alliance Boots Performance and Synergies

  • Continuing Headwinds from Europe
     
  • Austerity policies driving down drug prices, set to remain in place.

     

  • Timing, Likelihood of Synergies Uncertain
     
  • Procurement synergies are back-loaded.
     
  • Top-line synergies promised but appear unlikely.


     

    16

    The Deal is Risky: Doubtful beauty synergies make deal look even uglier

  • Boots’ beauty strategy faces challenges in US
     
  • Differences in US and UK markets make importing Boots’ beauty success unlikely.
     
  • US customers resist drugstores for beauty, favor high-end specialty retailers.

     

  • Margins are slashed for Boots products in US
     
  • Boots products cost up to 55 percent less at Walgreen.


     

    17

    The Deal is Risky: The long line of British failure in America



     

    18

    Acquisition poorly negotiated: Benefits AB’s Sellers

     

    WAG Historical EV/EBITDA Trading



     
                                                                                                   19

    Acquisition poorly negotiated: Long-term

    shareholder voices effectively silenced

  • Failed to protect shareholder franchise by:
        o      Avoiding shareholder vote for 2 years:
        o     

    Shareholders should have more sayThe way WAG has structured [this deal] treats shareholders very poorlyShareholders have no real say since the minimum purchase price ...is essentially set now even though there is no shareholder vote

         - Barclays Equity Research, 20 June 2012

     
        o

    No provision for a vote of the disinterested shares in Second Step, when Pessina already holds 7% of voting shares

     


     

                                                                                                                                                                                                               20

    Lacks Credible Execution: Acquisition comes at time of strategic missteps and internal acrimony.

  • WAG shocked market with $2 billion forecast reduction in August; 20% reduction in FY2016 EBIT goal for AB/WAG, stemming from:
     
  • Internal miscalculation of generic pricing and Medicare Part D reimbursement rates
     
  • Underperformance in both AB and WAG’s core business Ï AB growing at half the rate expected in 2012

     

  • Controversy over the departure of CFO and other top-ranking executives

     

  • Increasing pressure from hedge funds to prop up stock:
     
  • Undertake a tax inversion
     
  • Pursue share buybacks

     

    21

    Lacks Credible Execution: Disclosure leaves shareholders in dark on critical issues



     

    22

    Jana settlement further clouds interests of long-term shareholders



     

    23

    Summary: Why vote AGAINST this deal?



     

    Appendix



     

    Trend to Procurement Joint Ventures