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Feb 13, 2018

Amazon threat looms as Walgreens surveys U.S. healthcare landscape

FILE PHOTO: An Amazon.com Inc driver stands next to an Amazon delivery truck in Los Angeles

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The U.S. health-care supply and retail industry is folding in on itself amid pressure to cut costs and defend against outsiders, and a potential deal between Walgreens Boots Alliance Inc. and AmerisourceBergen Corp. would take two major pieces off the table.

A Wall Street Journal report that the companies were in takeover talks sent AmerisourceBergen shares surging late Monday. The discussions are at an early stage and may not ultimately lead to a deal, the paper said, citing people it didn’t identify.

If the companies agree to combine, it would be only the latest such move among firms that distribute, sell or administer health-care products and services. Last year, CVS Health Corp. agreed to pay US$68 billion for insurer Aetna Inc., after both looked at other companies. More deals could follow: Insurer Humana Inc. and drug-plan administrator Express Scripts Holding Co. could be potential takeout targets, according to analysts.

The threat of Amazon.com Inc. or another well-funded outsider disrupting the drug supply chain has loomed over deal discussions. 

The tech retail giant acquired licenses in more than a dozen states that would allow it to distribute and sell health-care goods as a wholesaler, Bloomberg reported in October. On Tuesday, the Wall Street Journal reported that Amazon had met with hospitals about potentially becoming customers of its business-to-business arm.

“The Amazon bogey finally seems to be finally spreading its wings to medical supplies,” wrote Vijay Kumar, an analyst with Evercore ISI. He said the company could be a “formidable player” when it comes to selling basic hospital staples like gloves, catheters, drapes and other products.

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Investor reaction early Tuesday showed the risk of not having a partner. AmerisourceBergen shares were up 13 per cent after the deal report, to US$100.90, at 7:45 a.m. in New York, but Cardinal Health Inc. and McKesson Corp. -- rivals that also sell basic staples to hospitals -- were down 3 per cent and 2.7 per cent.

Walgreens Chief Executive Officer Stefano Pessina has long talked about the need for closer ties in the health-care sector to cut costs out of the system. After the company’s takeover of Rite Aid Corp. was sharply scaled back amid antitrust objections by U.S. authorities, he may be turning to other parts of the health system for growth.

According to the Wall Street Journal, representatives of Pessina made a high-level outreach several weeks ago to representatives for AmerisourceBergen CEO Steven Collis. Walgreens already owns 26 per cent of AmerisourceBergen, an investment that has strengthened the already close ties between the drugstore chain and one of its main suppliers.

If the companies do make a deal, it would be one of the largest ever for Walgreens. AmerisourceBergen has a roughly US$19.6 billion market valuation, of which Walgreens already owns about US$5.09 billion.

--With assistance from Sam Nagarajan