Walgreens Boots Alliance Inc (WBA)

[big-yank]

There is a significant cost to warehousing and a huge cost to turning your pharmacy inventory 8 to 12X per year vs. 25 to 52X in a J.I.T. system. Unbundling these costs represents a tremendous increase in cash flow which Walgreens will require in order to complete A-B tranch #2 without incurring huge debt or dilution of S/P. I believe that the full A-B deal will close sooner than 2015.

Walgreens would have done the deal with Amerisource-Bergen even without the A-B combination, IMO. Walgreens was the odd-man-out with its former warehousing strategy, even before the DEA issues hit the fan where most of the record-keeping failures were at the Jupitor D.C., not at Walgreens store level. CVS had similar issues in Florida with its Sanford, FL area stores where the final result and possible judgement are still pending and could exceed the $80M that Walgreens agreed to in settlement.

Walgreens still offers a mailorder option. But they prefer the 90-day Rx option as it preserves retail store traffic and frontend sales.