As with most post-merger stages, following the announcement of the Walgreens bid for 45% of Alliance Boots, we have entered the silent period when most stakeholders try to digest the available details and many await notice of needs arising from this very complementary union of two key Health & Beauty players…
However, it would be a major error to mistake this silence for inactivity. Given the high speed at which companies move in these circumstances (see the Walgreens-Boots combined site) which opened on the day of the announced merger, and appears to have taken months of top secret preparation…) and the fact that Wall Street appear to think that Walgreens is paying over the odds for Alliance Boots (see the instant drop in share price), much has to be happening behind the scenes..
As can be seen, Walgreens-Boots will already have spent months in analysis and discussion of potential synergies in order to help persuade stockmarkets and government agencies to allow the deal to go ahead. Essentially, Walgreens-Boots want to deliver (purchasing) savings of US$100m in Year 1, rising to US$1bn in Year 4, globally.
These cost savings are required not just to make the deal stand up in Wall Street terms, but also because of the need to refinance current borrowing by each company, not forgetting Walgreens’ new borrowing arising from the purchase of the 45% stake in AB… It is obvious that this is an unprecedented merger in unprecedented times, involving two companies thathave no option but to make it work, in stockmarket terms.
It is vital that suppliers appreciate that there will inevitably be synergies and genuine opportunities arising from enthusiastic collaboration with this new US$100bn global customer. Apart from the obvious potential for Boots No7 in the US, according to Ornella Barra’s comments to the Chemist+Druggist, “There’s a lot of best practice to share. Walgreens is strong in developing innovative new pharmacy services in the most advanced healthcare market in the world.
Furthermore, Alex Gourlay, CEO of BootsH&B recently said it would consider putting US technology in Boots’ UK stores. “Walgreens’ technology is really strong, not just in pharmacy operations but also in being able to track customers,” he told the Chemist+Druggist. “They’re developing some really interesting products we can learn from and potentially implement in the UK.”
However, many of the savings synergies could be realised via a combination of extended credit, smaller and more frequent deliveries, scale buying, trade funding increases, deductions and those savings arising from inevitable prices & terms disharmonies on the part of global brands, to mention but a few of the more obvious moves….
And all of this at the expense of those suppliers that are unable to defend their current trading practices locally, regionally and globally…
Furthermore, in order to avail of the full potential of trade partnership, it is crucial that suppliers identify and deliver mutually beneficial synergies. In order to convince Walgreens-Boots of their appeal as trade partners, suppliers will need to calculate and demonstrate the financial value of their brand offerings to the retailers’ combined P&Ls.
In reality, for all parties, the next moves will take place in a highly competitive environment, with people talking without speaking, and people hearing without listening, but everyone needing to appreciate the scope and potential of this highly complementary merger and factor their conclusions into a comprehensive global trade strategy.
It is vital that suppliers should not underestimate the enormity of this global union and its potential for those who are prepared to fundamentally rethink their global Health & Beauty strategies.
For this reason, we shall continue to explore the merger as it evolves and hopefully indicate potential opportunities for NAMs everywhere via NamNews, KamBlog and other media. In fact, we may even try writing these words on the subway walls, and even tenement halls…
Seriously, the key issue is to be prepared for when the silence is broken, anticipate the moves and optimise your fair share of the potential supplier-retailer synergies in proactively partnering Walgreens-Boots, now.
As always, this can best be achieved by calculating the cost and demonstrating the value of your side of the partnership, locally, regionally and globally, better than anyone else.…
See KamTip: Walgreens-Boots, helping with the synergies
