Walgreens offers $8 billion in bonds; Moody's reports outlook stable

DEERFIELD, Ill. — Walgreens Boots Alliance on Thursday announced an offering of $8 billion in corporate bonds to help finance Walgreens' second step in its acquisition of Alliance Boots. One-third of the offerings will be satisfied within the next five years. 

 

The unsecured, unsubordinated notes consist of $750 million of floating rate notes due 2016; $750 million of 1.75% notes due 2017; $1.25 billion of 2.7% notes due 2019; $1.25 billion of 3.3% notes due 2021; $2 billion of 3.8% notes due 2024; $500 million of 4.5% notes due 2034; and $1.5 billion of 4.8% notes due 2044. 

 

Under the terms of the agreement, Walgreens will be acquiring the remaining 55% of Alliance Boots that it does not currently own for approximately $5 billion in cash and approximately $10 billion in shares of common stock of Walgreens. The company intends to use the net proceeds from the offering to fund a portion of the cash consideration and to refinance substantially all of Alliance Boots' existing borrowings. 

 

Moody's Investors Service assigned a Baa2 senior unsecured notes rating to Walgreens Boots Alliance. The rating outlook is stable. "Walgreens Boots Alliance's senior unsecured rating reflects its strong market position of three of its businesses. Walgreens, the largest drug store operator in the United States; Boots, the United Kingdom's largest drug store retailer; and Alliance Healthcare, a leading European pharmaceutical wholesaler," Moody's stated. "Moody's views WBA's Farmacia Ahumada business as having a weaker competitive position with Farmacias Benavides being the third largest retail pharmacy chain in Mexico and Farmacias Ahumada being one of the three largest retail pharmacy chains in Chile. The rating is also reflective of the 10 year contract with AmerisourceBergen which should benefit earnings over the long term. We believe the enhanced scalability of the Amerisource Bergen partnership will create further purchasing power."

 

Moody's anticipates that upon closing of the transaction Walgreens Boots Alliance will have about $18 billion in debt. However, its debt level will likely increase again in 2015 in order for Walgreens Boots Alliance to fund the $3 billion share repurchase authorization. Moody's estimates that Walgreens Boots Allliance's debt levels will peak at close to $19 billion.

 

"The stable outlook acknowledges Moody's expectation that the acquisition and integration of Alliance Boots will go smoothly," the firm added. "It also reflects Moody's belief that the global platform of Walgreens Boots Alliance will result in sizable purchasing synergies. The stable outlook also acknowledges that Moody's expects Walgreens Boots Alliance's debt to EBITDA will improve to below 3.75 times by fiscal 2017.

 

Subject to shareholder approval, it is expected that immediately prior to the completion of the second step of the Alliance Boots transaction, Walgreens will be reorganized into a holding company structure and will become a wholly-owned subsidiary of Walgreens Boots Alliance.

 

Following the completion of the second step of the Alliance Boots transaction, a portion of the net proceeds from the sale of the notes may also be used to satisfy existing debt, including the repayment of $750 million principal amount of Walgreens 1% Notes due March 13, 2015.

 

The sale of the notes is expected to close on Nov. 18, subject to customary closing conditions. 

 

The joint book-running managers for the offering are: Goldman Sachs, Merrill Lynch, Pierce, Fenner & Smith, Deutsche Bank Securities, Morgan Stanley & Co., HSBC Securities, J.P. Morgan Securities and Wells Fargo Securities.