Shares of AmeisourceBergen (NYSE:ABC), a distributor of brand-name and generic drugs and a pharmacy supply chain management company, soared by as much as 14% Tuesday after The Wall Street Journal reported before the opening bell that Walgreens Boots Alliance (NASDAQ:WBA) is considering a buyout bid for the company.
The stock is up about 9% as of 3:30 p.m. EST.
According to reports, Walgreens CEO Stefano Pessina spoke with representatives of AmerisourceBergen CEO Steven Collis about the possibility of a buyout a few weeks ago. Walgreens already owns 26% of AmerisourceBergen. Though no official offer has been made by Walgreens Boots Alliance, the recent developments in a rapidly consolidating drug-distribution industry are certainly causing a stir.
These rumors follow last month's announcement that JPMorgan Chase, Amazon.com, and Berkshire Hathaway were joining forces to create a nonprofit healthcare venture to lower costs and improve healthcare services for their employees. They also come just a little over two months after rival CVS Health announced that it would be purchasing Aetna for $69 billion. This fight for market share and lower costs could take a further toll on already-tightening margins, which could be the impetus behind Walgreens' attempt to feel out AmerisourceBergen.
Does a tie-up between these companies make sense? The answer is murky at best.
Clearly, purchasing AmerisourceBergen would give Walgreens a greater reliance on the U.S. market for profits and sales. Since the U.S. lacks a lot of the drug-pricing controls found in Europe, this would likely mean stronger profitability. But it's not clear what additional value adding AmerisourceBergen would have, considering that AmerisourceBergen is currently focusing on its own business-expansion opportunities. Not to mention that Walgreens' integration of Rite Aid and subsequent closure of around 600 stores could create combination hiccups if Walgreens pursues AmerisourceBergen.
For the time being, I wouldn't read too much into this chatter. Whatever your investment thesis was on AmerisourceBergen yesterday should still stand today.