On Tuesday, pharmacy giant Walgreens Boots Alliance announced it would buy competitor Rite Aid in a $US17 billion deal.
Assuming regulators allow for the deal, you’re looking at a global drug-retailing monster.
But a company never takes out another company just to increase its footprint. They do it to increase value for shareholders.
“Our complementary retail pharmacy footprints in the U.S. will create an even better network, with more health and wellness solutions available in stores and online,” Walgreens Boots Alliance Executive Vice Chairman and CEO Stefano Pessina said. “[T]his combination will generate a stronger base for sustainable growth and investment into Rite Aid stores, while realising synergies over time.”
What are these “synergies?”
Synergy is what you get when you eliminate redundancies in your efforts to cut costs. It’s a word that probably has every Walgreen and Rite Aid employee a little nervous. The company explained in the news release:
“The transaction is expected to be accretive to Walgreens Boots Alliance’s adjusted earnings per share in its first full year after completion. Additionally, Walgreens Boots Alliance expects to realise synergies in excess of $US1 billion.”
“Synergy” usually means the closing and combining of stores, warehouses, and offices, which also often comes with job cuts.
Walgreens employs around 251,000 people, including 76,000 part-time workers. Rite Aid employs around 89,000.
This is a very rough calculation, so take this with a grain of salt. But assuming half of those potential synergies ($US500 million) come from reduced headcount and each worker saves $US75,000, this back-of-the-envelope calculation would see more than 6,700 employees being let go.
The companies haven’t actually announced or quantified any reductions in headcount just yet. But you can bet that announcement is coming.