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Alliance Boots Merger Boosts Walgreens’ Leverage

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Aug. 18 2020, Updated 10:34 a.m. ET

Debt levels increase after Boots Alliance acquisition

Walgreens Boots Alliance’s (WBA) total debt stood at $14.4 billion at the end of fiscal 2015. There was a 220% increase in the company’s outstanding debt in fiscal 2015, which stood at $4.5 billion in fiscal 2015. The increase in leverage was primarily a result of the debt raised by Walgreens to finance the acquisition of Boots Alliance.

As a part of Walgreens Boots Alliance’s acquisition deal, the company assumed $9 billion of Alliance Boots’ debt during the second-step transaction. In January 2015, the company repaid a substantial portion of the assumed debt with proceeds from the $8 billion in notes issued in November 2014.

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Balance sheet strength

The company’s debt-to-equity ratio stood at 0.22x at the end of fiscal 2014. It had averaged 0.15x over the last ten years and increased to 0.41x in fiscal 2015 as a result of the Alliance Boots acquisition.

Walgreens Boots Alliance’s net debt-to-equity ratio increased from 0.09x at the end of fiscal 2014 to 0.36x at the end of fiscal 2015. The transaction resulted in a significant rise in net debt, which increased from $1.8 billion to $11.3 billion after the acquisition.

Peer comparison: Leverage

Although Walgreens Boots Alliance’s leverage increased after the Alliance Boots merger, it still remains better than that of its drugstore peers and in line with that of healthcare supply chain peers. WBA’s net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) stood at 1.9x for 4Q15, compared with CVS Health’s (CVS) 2.2x during the last reported quarter. Rite Aid’s (RAD) high debt level resulted in a net debt-to-EBITDA of 5.7x, which was the worst among its peers. AmerisourceBergen (ABC) had a net debt-to-EBITDA of 2x, while McKesson (MCK) and Cardinal Health (CAH) both had a ratio of 0.9x.

ETF exposure

Investors looking for exposure to drugstore companies such as Walgreens Boots Alliance (WBA), CVS Health (CVS), and Rite Aid (RAD) can invest in the Vanguard Consumer Staples ETF (VDC), as these companies together account for 9.6% of the ETF’s weight.

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