Alliance Boots Executive Chairman Stefano Pessina (left) and Walgreens President And CEO Greg Wasson

Walgreen Co. and Alliance Boots GmbH, a leading international pharmacy-led health and beauty group, today announced that they have entered into a strategic transaction designed to bring together the strengths and expertise of both companies to create a global pharmacy-led, health and wellbeing enterprise.

Walgreens and Alliance Boots are the largest retail pharmacy, health and daily living destinations in the U.S. and Europe, respectively, and together they would have over 11,000 stores in 12 countries, a global pharmaceutical wholesale and distribution network with over 370 distribution centers delivering to more than 170,000 pharmacies, doctors, health centers and hospitals in 21 countries, and become one of the world’s largest purchasers of prescription drugs and other health and wellbeing products.

Walgreens will invest approximately $6.7 billion in cash and stock comprised of $4 billion in cash and 83.4 million shares in exchange for a 45% equity ownership stake in Alliance Boots. Walgreens will have the option to proceed to a full stake by acquiring the remaining 55% of Alliance Boots in approximately three years’ time. At the current Walgreens share price and exchange rate, the second step of the transaction would be valued at approximately $9.5 billion in cash and stock, plus the assumption of Alliance Boots then-outstanding debt. Completion of the initial investment, which is subject to various regulatory approvals, is expected to take place by September 1, 2012.

The boards of directors of Walgreens and Alliance Boots have unanimously approved the transaction. Upon the completion of the initial investment, Gregory Wasson, president and CEO of Walgreens, Wade Miquelon, evp and CFO, Thomas Sabatino, evp and general counsel, and Robert Zimmerman, svp and chief strategy officer, will join the Alliance Boots board of directors. In addition, Stefano Pessina, executive chairman of Alliance Boots, and Dominic Murphy, director and member of KKR & Co., will join the Walgreens board.

Alliance Santé Participations S.A., of which Stefano Pessina is a director and whose ultimate ownership is a family trust, will hold a significant stake in Walgreens. KKR, through its funds, will also be an important shareholder of Walgreens.

The transaction is expected to be accretive to Walgreens net earnings per diluted share in the first year following completion of the initial step of the transaction, by approximately $0.23 to $0.27, excluding one-time transaction costs. 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.

Gregory Wasson, president and CEO of Walgreens, said, “At Walgreens, our mission is to be America’s first choice for health and daily living. Today’s announcement represents an exciting opportunity to accelerate our core strategies and advance that mission in the U.S. and now internationally. We are bringing together the strengths and expertise of each company to create a worldwide healthcare platform for the future that can provide innovative ways to address global health and wellness challenges.”

Walgreens also stated that both companies will continue to operate under their brand names. Upon completion of the second step of the transaction, the name of the new combined entity will reflect the heritage of both companies. It also indicated that are no plans for job reductions at either company as a result of the transaction, and both will retain their existing headquarters.

Walgreens operates 7,890 drugstores in all 50 states, the District of Columbia and Puerto Rico. Alliance Boots has pharmacy-led health and beauty retail businesses in 11 countries and operates more than 3,330 health and beauty retail stores, of which just over 3,200 have a pharmacy.