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Source: Bloomberg, September 9, 2014 article


Walgreen Pressured to Up Buyback as Activist Wins Seats

By Cynthia Koons and Beth Jinks | Sep 9, 2014 9:41 AM ET

Walgreen Co. (WAG) will be pressured to boost a $3 billion share buyback that disappointed investors last month after activist hedge fund Jana Partners LLC struck a deal yesterday on three board seats at the U.S. drugstore chain, said a person familiar with the matter.

Jana will use the positions to push for more of Walgreen’s capital to be put toward repurchases, said the person, who spoke on condition of anonymity because the discussions are private. The settlement, which immediately added Jana founder Barry Rosenstein to the board, comes after Walgreen last month agreed to buy the rest of European health and beauty chain Alliance Boots GmbH for $15.3 billion.

Jana and other investors have agitated for a more shareholder-friendly use of Walgreen’s cash, and urged it to run more like Bern, Switzerland-based Alliance Boots. Making those changes would mean improving margins, increasing sales and boosting offerings such as beauty products.

Walgreen shares gained less than 1 percent to $63.16 at 9:34 a.m. in New York.

The shareholder pressure has created a power shift atop Deerfield, Illinois-based Walgreen that has split authority with Alliance Boot’s management. Alliance Boots Chairman Stefano Pessina, who joined the board in 2012, will be executive vice chairman in charge of strategy and acquisitions while a handful of Alliance Boots executives have taken key roles.

Bigger Buyback

Walgreen shareholders, including Jana, are seeking to increase the buyback by at least several billion dollars.

“The buyback was smaller than expected and, historically, they’ve kept an extremely conservative balance sheet,” said Jeff Jonas, associated portfolio manager at Gabelli Funds, a Walgreen shareholder, in an interview before Jana won the board seats. Jonas said investors had expected $5 billion to $10 billion in share repurchases.

Along with buying the rest of Alliance Boots, Walgreen last month cut its adjusted earnings forecast by about $2 billion and said it wouldn’t move its legal address abroad for a lower tax rate.

After taking a position in Walgreen this year and engaging in months of talks, Jana’s Rosenstein settled for a spot on Walgreen’s board and his choice of a second director. Rosenstein runs the $11 billion investment fund and, together with Walgreen, will choose a third director if one of what will be 15 board seats opens, the pharmacy retailer said. Jana owned 1.2 percent of Walgreen shares as of June 30, according to data compiled by Bloomberg.

Credit Rating

Walgreen officials said in August that they didn’t offer a bigger buyback because they wanted to reserve money for deals and protect the company’s credit rating.

The company has acknowledged the feedback it received from unhappy investors and said the board will “keep it in mind as it considers future activity,” Michael Polzin, a Walgreen spokesman, said in a telephone interview.

Rosenstein said he planned to use the role to be a voice for shareholders. “I am eager to work constructively with Greg, Stefano Pessina and the entire Walgreens board to help unlock greater value,’’ he said in a statement. Alliance Boots spokeswoman Laura Vergani declined to comment on Jana’s involvement.

To contact the reporters on this story: Cynthia Koons in New York at; Beth Jinks in New York at

To contact the editors responsible for this story: Reg Gale at; Mohammed Hadi at Drew Armstrong

©2014 Bloomberg L.P. All Rights Reserved



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