(By Balachander) Drugstore chain Walgreen Co. (NYSE:WAG) will be paying $6.7 billion to acquire a 45 percent stake in U.K.'s health and beauty retailer Alliance Boots.
The Deerfield, Illinois-based company intends to spend $4 billion in cash and 83.4 million shares to buy the 45 percent stake and it will have an option to buy the rest of the company in around three years in a deal valued at roughly $9.5 billion.
Walgreen, which also raised its quarterly dividend by 22 percent to 27.5 cents, expects the deal to add to its earnings by 23 cents to 27 cents in 2013 following closed of the initial step of the deal.
Alliance Boots Plc, created on July 2006 through the merger of Alliance UniChem Plc and Boots Group Plc, was taken private by private-equity giant Kohlberg Kravis Roberts in 2007 for around $22 billion.
Walgreens expects combined synergies across both companies to be between $100 million and $150 million in the first year and $1 billion by the end of 2016.
The transaction will not result in job cuts at either company, Walgreens said.
The initial investment is expected to close by September 1, 2012.
Walgreens said it received commitments for a $3.5 billion bridge facility from Goldman, Sachs & Co. (GS) and Bank of America Merrill Lynch (BAC).
Separately, Walgreens posted a fall in third-quarter earnings as prescription sales fell. The company earned 62 cents, down 4.9 percent from the year-ago quarter. Sales declined 3.4 percent to $17.8 billion and comparable stores fell 6.6 percent. Prescription sales in comparable stores dropped 9.9 percent.
At May 31, Walgreens operated 8,343 locations in all 50 states, the District of Columbia, Puerto Rico and Guam.
Shares added 3.25 percent in premarket trading on Tuesday.