Walgreens Takes a Leap of Faith Into Europe
Last week we brought you a list of American companies, specifically in the retail sector, who had little to no exposure to European markets. Because of this lack of exposure, these firms could be safe havens for investors who were anxious about the tenuous situation surrounding Greece, Spain, and other member of the European Union. Perhaps we spoke too soon. One of those retailers announced Tuesday that it was making a major leap into the European economy and hoping consumers across the pond build the confidence to start spending.
Walgreen (NYS: WAG) announced it would be purchasing a forty-five percent share of Alliance Boots GmbH. This transaction will create the world largest provider of prescription drugs and will mark the first time that the American drug-store giant takes their business to Europe. The retail chain has already endured a number of difficulties this year with pharmaceutical partners, and it hopes this acquisition will prove beneficial by incorporating some of the more high-end products Alliance Boots offers, allowing the company to pool resources, and lowering operating costs.
This is a curious time for Walgreens to pull the trigger on entering the European market, although reports say the deal was in the works for more than a year. Presidential elections took place in Greece this past Sunday, and following the victory of the pro-bailout New Democracy party, many market watchers hoped this would lead to a rebound in European markets. This hope has not come to fruition as European markets reacted timidly to the news. Falling in line with the overall market, shares of Walgreens have not received a bounce off the announcement but rather fell nearly six percent as of Tuesday afternoon.
How will the market react to this transaction? While in the short-term Walgreen's share price has taken a hit, in the long term they expect that the economies of sale they will gain as the world's largest purchaser of prescription drugs will prove beneficial for the company.
However, all of these plans could be undone if the fiscal situation in the European Union remains unresolved.
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Disclosure: Kapitall's Dan Connelly does not own any of the shares mentioned above.
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