Walgreens Boots makes Pessina permanent CEO

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Posted: Jul 09, 2015 11:51 AM
Walgreens Boots makes Pessina permanent CEO

Walgreens Boots Alliance has named Stefano Pessina CEO, making permanent a role the veteran executive has filled since he helped create a drugstore behemoth that may not be done growing.

The 73-year-old Monaco resident led European health and beauty retailer Alliance Boots as executive chairman before engineering a combination with Walgreen Co., which runs the largest drugstore chain in the United States.

That tie-up created one of the world's largest pharmaceutical buyers at a time when other key players in the health care industry also are expanding through multi-billion dollar deals. Walgreens' chief U.S. rival, CVS Health Corp., announced a partnership with the retailer Target last month. Another drugstore chain, Rite Aid Corp., and the health insurer UnitedHealth Group Inc. both are expanding their pharmacy benefits management businesses, and several insurers and drugmakers have announced plans to combine

Walgreens Boots Alliance Inc. now runs more than 13,200 stores and 350 distribution centers in 11 countries. That size gives the company added negotiating muscle over drug prices and other health care products, as the drugstore industry broadens its reach into providing care. Pessina said Thursday, after the company announced his appointment, that Walgreens is eager to get bigger internationally or in a U.S. market that is undergoing "a substantial wave of consolidation.

"I have said clearly that we want to be part of this at the right time with the right partner," he told analysts during a conference call to discuss fiscal third quarter earnings.

Pessina had served interim replacement for Walgreen leader Greg Wasson, who retired after the tie-up with Alliance Boots was completed at the end of 2014. He told analysts that the Walgreens board decided that there was a benefit to maintaining stability at the top of the company while so much change took place.

Before the deal that created Walgreen Boots Alliance, Pessina had built his career in Europe, where the Italian native established the pharmaceutical wholesale group Alliance Sante in 1977. Pessina will continue to live in Monaco and report to Walgreens Executive Chairman Jim Skinner, the former CEO of McDonald's Corp.

Walgreen initially bought a 45 percent stake in Alliance Boots in 2012. The U.S. company then announced last year that it would pay about $16 billion in cash and stock to buy the remaining stake in Alliance Boots that it did not already own. That deal was completed on the final day of 2014, and the combined company is headquartered in Deerfield, Illinois.

Pessina is the largest individual shareholder in the combined company, with a 6.8 percent stake, according to FactSet.

Walgreens Boots Alliance also said Thursday that it earned $1.71 billion in its fiscal third quarter. That amounted to adjusted earnings of $1.02 per share, a total that trumped expectations on Wall Street.

Analysts forecast, on average, earnings of 87 cents per share, according to Zacks Investment Research..

Company executives told analysts that strong revenue growth from established U.S. stores, especially in the pharmacy, helped the overall performance.

Walgreens announced in April a plan to close about 200 U.S. stores by fiscal 2017 as part of a push to streamline its operations after the combination. It said Thursday that it has shuttered nine so far and will close an additional 70 to 80 by the end of the fiscal year. It also plans to open a similar number of stores.

The Deerfield, Illinois, company also said Thursday it was cutting about 700 jobs outside stores in its international retail pharmacy business. Walgreens Boots Alliance employs more than 370,000 people globally.

Company shares climbed nearly 5 percent, or $4.24, to $90.15 in midday trading Thursday.

The stock had already climbed about 13 percent so far this year, while the broader Standard & Poor's 500 index has slipped, a sign that investors favor the company's expansion push.