Walgreens Boots Alliance Inc. needs another deal.
That became clear after the FTC trimmed the drugstore giant's planned acquisition of Rite Aid Corp. and especially after rival CVS Health Inc. announced the $67.5 billion purchase of health insurer Aetna Inc.
But faced with disruption in the health care sector from multiple angles, Walgreens seems to be playing it safe.
The Wall Street Journal reported Monday night that the company has approached AmeriSourceBergen Corp., a drug distributor in which Walgreens already has a major stake, about a possible takeover. Such a deal may score highly on near-term value and ease of integration. But it seems out of step with the bigger ambitions on display in the health care world.
CVS's purchase of Aetna, for example, may pioneer a new model of health care, while boosting the profitability of both businesses.
In contrast, a Walgreens-Amerisource deal would keep the purchaser's focus on supplying drugs, while pulling it into the low-margin business of distribution in the U.S.. In fact, Amerisource's operating margins trail those of distributor rivals. That suggests Walgreens — a major source of Amerisource's business — already gets a pretty nice deal on drugs from the partnership. Any extra savings from buying the company outright likely won't be very big.
Pressure on drug prices — generic and branded — will continue to make U.S. drug distribution less profitable than it was in past years, when price inflation provided a reliable annual tailwind.
A Walgreens-Amerisource combo would be able to negotiate more effectively with both clients and drugmakers given its increased scale and broader capabilities. But almost no matter what, a narrow focus on the supply chain has limited upside relative to moving deeper into other areas of health care. Walgreens currently trades at a premium to rival CVS. That may not survive this deal in the long run.
