S-4/A 1 d810278ds4a.htm S-4/A S-4/A
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As filed with the Securities and Exchange Commission on October 29, 2014

Registration No. 333-198768

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Walgreens Boots Alliance, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   5912   47-1758322

(State or other jurisdiction

of incorporation)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

108 Wilmot Road

Deerfield, Illinois 60015

(847) 315-2500

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

 

 

Thomas J. Sabatino, Jr.

Executive Vice President, Chief Legal and Administrative Officer and Corporate Secretary

Walgreen Co.

108 Wilmot Road

Deerfield, Illinois 60015

(847) 315-2500

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

 

 

Copy to:

Andrew R. Brownstein

Benjamin M. Roth

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

(212) 403-1000

 

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the mergers described in the enclosed document.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant will file a further amendment which specifically states that this Registration Statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement will become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus is not complete and may be changed. We may not sell the securities offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or solicitation is not permitted.

 

SUBJECT TO COMPLETION, DATED OCTOBER 29, 2014

 

LOGO

108 Wilmot Road

Deerfield, Illinois 60015

Dear Walgreen Co. Shareholder:

On behalf of our board of directors (the “Board”), we are very pleased to enclose the proxy statement/prospectus relating to the acquisition of the remaining 55% of Alliance Boots GmbH (“Alliance Boots”) that Walgreen Co. (“Walgreens”) does not currently own (the “Step 2 Acquisition”), pursuant to the Purchase and Option Agreement, dated as of June 18, 2012, as amended on August 5, 2014 (as amended, the “Purchase and Option Agreement”), by and among Walgreens, AB Acquisitions Holdings Limited (“AB Acquisitions”) and Alliance Boots.

The Board, after careful consideration, has determined that it is in the best interests of Walgreens and its shareholders to exercise Walgreens’ option (the “Call Option”) under the Purchase and Option Agreement to complete the Step 2 Acquisition in exchange for £3.133 billion in cash, payable in British pounds sterling, and 144,333,468 shares of Walgreens common stock, subject to certain potential specified adjustments described further in the enclosed proxy statement/prospectus. Pursuant to an amendment to the Purchase and Option Agreement entered into by Walgreens on August 5, 2014 (the “Amendment”), the Call Option became exercisable by Walgreens on that date, and Walgreens, through an indirect wholly owned subsidiary, exercised the Call Option on August 5, 2014.

In addition, in connection with the Step 2 Acquisition and as further described in the enclosed proxy statement/prospectus, the Board has determined that it is in the best interests of Walgreens and its shareholders to, immediately prior to the completion of the Step 2 Acquisition, complete a reorganization of Walgreens into a holding company structure (the “Reorganization”), under which Walgreens would become a wholly owned subsidiary of a new Delaware corporation named “Walgreens Boots Alliance, Inc.” (“Walgreens Boots Alliance” or “HoldCo”) and you will become a shareholder of Walgreens Boots Alliance. The Reorganization is conditioned upon, and will not be completed unless, the Step 2 Acquisition is completed immediately following the completion of the Reorganization. The Step 2 Acquisition is not conditioned on the completion of the Reorganization.

In the Reorganization, your existing shares of Walgreens common stock will be converted automatically into shares of Walgreens Boots Alliance common stock, par value $0.01, on a one-for-one basis. You will own the same number of shares of Walgreens Boots Alliance common stock as you own of Walgreens common stock immediately prior to the completion of the Reorganization, and, after taking into account the completion of the Step 2 Acquisition, your shares will represent the same ownership percentage of Walgreens Boots Alliance as you would have of Walgreens immediately following the completion of the Step 2 Acquisition without the Reorganization.

The Walgreens Boots Alliance holding company is expected to be headquartered in the Chicago area, while Walgreens’ operations are expected to remain headquartered in Deerfield, Illinois and Walgreen Co. will remain an Illinois corporation. Alliance Boots’ operations also are expected to remain headquartered at their current locations in the U.K.

The merger pursuant to which the Reorganization will be accomplished is intended to be generally tax-free, for U.S. federal income tax purposes, to Walgreens shareholders.

In connection with the Transactions, Walgreens will hold a Special Meeting of Shareholders on [            ] at [            ], Central Time, at [            ].


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At the Special Meeting, you will be asked to consider and vote upon a proposal to complete the Reorganization (the “Reorganization Proposal”).

You will also be asked to consider and vote upon a proposal to approve the following “Share Issuance”: (1) if the Reorganization Proposal is approved and the Reorganization completed, Walgreens Boots Alliance, immediately following the completion of the Reorganization, issuing, in a private placement, shares of Walgreens Boots Alliance common stock to AB Acquisitions and the trustee of the Alliance Boots management equity plan (collectively, the “Sellers”) in connection with the Step 2 Acquisition and (2) if the Reorganization Proposal is not approved or the Reorganization otherwise not completed, Walgreens issuing, in a private placement, shares of Walgreens common stock to the Sellers in connection with the Step 2 Acquisition, in either case which is currently expected to be 144,333,468 shares, subject to potential adjustment (the “Share Issuance Proposal”). If our shareholders do not approve the Share Issuance Proposal, Walgreens will be unable to complete the Step 2 Acquisition or the Reorganization.

The Reorganization, the Share Issuance and the Step 2 Acquisition are sometimes referred to collectively in the enclosed proxy statement/prospectus as the “Transactions.”

Certain of Walgreens’ directors and executive officers may have material financial interests in the Transactions that are different from, or in addition to, the interests of Walgreens shareholders generally. See “The Transactions—Walgreens’ Directors and Executive Officers May Have Financial Interests in the Transactions,” beginning on page [    ].

Shares of Walgreens Boots Alliance common stock are not currently listed on any national securities exchange. If the Reorganization is completed, we expect shares of Walgreens Boots Alliance common stock to be listed and trade on one or more U.S. national securities exchanges, and under ticker symbol(s), in each case to be determined and publicly disclosed by Walgreens and Walgreens Boots Alliance prior to the closing of the Reorganization. Shares of Walgreens common stock are currently traded under the “WAG” symbol on the New York Stock Exchange (the “NYSE”), NASDAQ Global Select Market (“NASDAQ”), and the Chicago Stock Exchange.

The Board recommends that you vote “FOR” the Reorganization Proposal; “FOR” the Share Issuance Proposal; and “FOR” the proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve and adopt the Reorganization Proposal or the Share Issuance Proposal.

The enclosed document is an important document containing answers to frequently asked questions and a summary description of the Transactions, followed by more detailed information about Walgreens, Alliance Boots, Walgreens Boots Alliance, the Step 2 Acquisition, the Share Issuance, the Reorganization and related matters. The document is a prospectus related to the proposed issuance by Walgreens Boots Alliance of shares of common stock to Walgreens shareholders in the Reorganization. It is also a proxy statement to use in soliciting proxies for the Special Meeting to vote on the Share Issuance and the Reorganization. We urge you to read the enclosed proxy statement/prospectus, including the annexes, and the documents incorporated by reference into the proxy statement/prospectus, carefully and in their entirety.

Your vote is very important. We cannot complete the Step 2 Acquisition unless you approve the Share Issuance and we cannot complete, in connection with the Step 2 Acquisition, the Reorganization, unless you adopt and approve the Reorganization and approve the Share Issuance. Whether or not you expect to attend the Special Meeting in person, the details of which are described in the enclosed document, please vote immediately by submitting your proxy by telephone, through the Internet or by completing, signing, dating and returning your signed proxy card(s) in the enclosed pre-paid envelope. If you have any questions or require assistance, please contact Innisfree M&A Incorporated, our proxy solicitor for the Special Meeting, toll-free at (877) 456-3463.


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Thank you for your continued support, and be well.

 

Sincerely,

  

LOGO

   LOGO
JAMES A. SKINNER    GREGORY D. WASSON
Chairman of the Board    President and Chief Executive Officer

You should consider the matters discussed under “Risk Factors” beginning on page 26, which contain a description of certain risks you may wish to consider in evaluating the transactions described in this proxy statement/prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this proxy statement/prospectus or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense. We may amend or supplement this proxy statement/prospectus from time to time by filing amendments or supplements as required.

This proxy statement/prospectus is dated [                    ], and is first being mailed to Walgreen Co. shareholders on or about [            ].


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LOGO

108 Wilmot Road

Deerfield, Illinois 60015

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held [            ], [        ]

To the Shareholders of Walgreen Co.:

Walgreens will hold a Special Meeting of its Shareholders (the “Special Meeting”) on [            ] at [            ], Central Time, at [            ], to consider and vote on three items:

(1) a proposal to approve and adopt the Agreement and Plan of Merger, dated as of October 17, 2014 (the “Reorganization Merger Agreement”), which Walgreens entered into with Walgreens Boots Alliance, Inc., a newly formed Delaware corporation and wholly owned subsidiary of Walgreens, and Ontario Merger Sub, Inc., a newly formed Illinois corporation and wholly owned subsidiary of Walgreens Boots Alliance (“Merger Sub”), pursuant to which Merger Sub will merge with and into Walgreens (the “Reorg Merger”) and Walgreens will survive the Reorg Merger as a wholly owned subsidiary of Walgreens Boots Alliance, and to approve and adopt the Reorg Merger and the Reorganization (the “Reorganization Proposal”);

(2) a proposal to approve the issuance, in a private placement, of shares of (A) if the Reorganization Proposal is approved and the Reorganization completed, Walgreens Boots Alliance common stock or (B) if the Reorganization Proposal is not approved or the Reorganization is not otherwise completed, Walgreens common stock, in either case to the Sellers in connection with the completion of the Step 2 Acquisition, and in either case which is currently expected to be 144,333,468 shares, subject to potential adjustment (the “Share Issuance Proposal”); and

(3) a proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve and adopt the Reorganization Proposal or the Share Issuance Proposal (the “Adjournment Proposal”).

The Reorganization is conditioned upon, and will not be completed unless, the Step 2 Acquisition is completed immediately following the completion of the Reorganization. The Share Issuance and the Step 2 Acquisition are not conditioned on the completion of the Reorganization.

The Transactions will only be completed if certain conditions to closing set forth in the Purchase and Option Agreement are satisfied or (to the extent permitted by applicable law) waived.

If the Step 2 Acquisition is completed, holders of Walgreens common stock (Walgreens Boots Alliance common stock if the Reorganization is completed) immediately prior to the Step 2 Acquisition (including the Sellers and their affiliates, to the extent of their ownership immediately prior to the Step 2 Acquisition), in the aggregate, are estimated to hold approximately 86.7% of the pro forma total outstanding shares of the combined company (based on the number of shares of Walgreens common stock outstanding as of October 20, 2014, assuming completion of the Step 2 Acquisition and the issuance of 144,333,468 shares as of that date).

The Board, after careful consideration, has determined that it is in the best interests of Walgreens and its shareholders to complete the Reorganization and the Step 2 Acquisition. The Board recommends that you vote “FOR” the Reorganization Proposal; “FOR” the Share Issuance Proposal; and “FOR” the Adjournment Proposal.

A copy of the Reorganization Merger Agreement is attached to this proxy statement/prospectus as Annex A. The certificate of incorporation and bylaws of Walgreens Boots Alliance to be in effect immediately upon


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completion of the Reorganization are set forth as Annex E and Annex F, respectively, to this proxy statement/prospectus. A copy of the unamended Purchase and Option Agreement is attached as Annex B-1 to this proxy statement/prospectus and a copy of the Amendment is attached as Annex B-2 to this proxy statement/prospectus.

Only shareholders of record at the close of business on [            ] are entitled to notice of, and to vote at, the Special Meeting and any adjournments or postponements of the Special Meeting. No business other than the proposals described in this notice will be considered at the Special Meeting or any adjournment or postponement thereof. A complete list of Walgreens’ shareholders of record entitled to vote at the Special Meeting will be available for inspection at the Special Meeting.

Your vote is very important, regardless of the number of shares you own. Walgreens cannot complete the Reorganization unless the Reorganization Proposal is approved by the affirmative vote of a majority of the issued and outstanding shares of Walgreens’ common stock, and the Share Issuance Proposal is approved by a majority of the votes cast on the proposal. Walgreens cannot complete the Share Issuance and the Step 2 Acquisition unless the Share Issuance Proposal is approved by a majority of the votes cast on the proposal. Regardless of whether you plan to attend the Special Meeting in person, please submit your proxy with voting instructions. Please vote as soon as possible. If you hold shares in your name as a shareholder of record, please complete, sign, date and return the accompanying proxy card(s) in the enclosed self-addressed, stamped envelope. You may also authorize a proxy to vote your shares by either visiting the website or calling the toll-free number shown on your proxy card. If you hold your shares in “street name” through a bank or broker, please direct your bank or broker to vote in accordance with the instructions you have received from your bank or broker. This will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any shareholder who is present at the Special Meeting may vote in person instead of by proxy, thereby canceling any previous proxy. In any event, a proxy may be revoked in writing at any time before its exercise at the Special Meeting in the manner described in this proxy statement/prospectus.

By Order of the Board of Directors,

 

LOGO

THOMAS J. SABATINO, JR.

      Corporate Secretary


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REFERENCES TO ADDITIONAL INFORMATION

This document incorporates important business and financial information about Walgreens from documents that are not included in or delivered with this document. You can obtain documents incorporated by reference in this document, other than certain exhibits to those documents, by requesting them in writing or by telephone at the following address:

Walgreen Co.

108 Wilmot Road

Deerfield, Illinois 60015

(847) 315-2361

investor.relations@walgreens.com

The firm assisting Walgreens with the solicitation of proxies is:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Shareholders Call Toll-Free: (877) 456-3463

Banks and Brokers Call Collect: (212) 750-5833

You will not be charged for any of these documents that you request. Shareholders requesting documents should do so by [            ], in order to receive them before the Special Meeting.

See “Where You Can Find More Information.”


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE WALGREENS SPECIAL MEETING

     1   

SUMMARY

     7   

WALGREENS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     20   

ALLIANCE BOOTS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     22   

UNAUDITED COMPARATIVE PER SHARE INFORMATION

     24   

EXCHANGE RATE INFORMATION

     25   

RISK FACTORS

     26   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     38   

MARKET, ECONOMIC AND INDUSTRY DATA

     40   

THE WALGREENS SPECIAL MEETING

     41   

THE TRANSACTIONS

     46   

MARKET PRICE AND DIVIDEND INFORMATION

     91   

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

     93   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     108   

INFORMATION ABOUT THE COMPANIES

     166   

DIRECTORS AND EXECUTIVE OFFICERS OF WALGREENS BOOTS ALLIANCE IMMEDIATELY FOLLOWING THE COMPLETION OF THE TRANSACTIONS

     170   

DESCRIPTION OF WALGREENS BOOTS ALLIANCE CAPITAL STOCK

     174   

COMPARISON OF SHAREHOLDER RIGHTS BEFORE AND AFTER THE REORGANIZATION

     177   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF WALGREENS

     189   

THE PURCHASE AND OPTION AGREEMENT

     191   

THE AMENDMENT

     203   

WALGREENS SHAREHOLDERS AGREEMENT

     204   

AB SHAREHOLDERS AGREEMENT

     209   

REORGANIZATION MERGER AGREEMENT

     216   

OTHER AGREEMENTS AND ARRANGEMENTS

     219   

LEGAL MATTERS

     223   

EXPERTS

     223   

WALGREENS BOOTS ALLIANCE ANNUAL MEETING SHAREHOLDER PROPOSALS

     224   

SHAREHOLDERS SHARING AN ADDRESS

     225   

COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

     226   

OTHER MATTERS

     226   

WHERE YOU CAN FIND MORE INFORMATION

     227   

 

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ANNEXES

 

Annex A

   Reorganization Merger Agreement

Annex B-1

   Purchase and Option Agreement

Annex B-2

   Amendment No. 1 to Purchase and Option Agreement and Walgreen Co. Shareholders Agreement

Annex C

   Shareholders Agreement

Annex D

   AB Shareholders Agreement

Annex E

   Amended and Restated Certificate of Incorporation of Walgreens Boots Alliance, Inc.

Annex F

   Amended and Restated Bylaws of Walgreens Boots Alliance, Inc.

Annex G

   Sections 11.65 and 11.70 of the Illinois Business Corporation Act (Dissenters’ Rights)

Annex H

   Opinion of Goldman, Sachs & Co.

Annex I

   Opinion of Lazard Frères & Co. LLC

 

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QUESTIONS AND ANSWERS ABOUT THE WALGREENS SPECIAL MEETING

The following are answers to some questions that you, as a shareholder of Walgreens, may have regarding the Transactions and the other matters being considered at the Special Meeting. Walgreens urges you to read carefully the remainder of this proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the Transactions and the other matters being considered at the Special Meeting. Additional important information is also contained in the annexes to and the documents incorporated by reference into this proxy statement/prospectus.

 

Q: When and where is the Special Meeting?

 

A: The Special Meeting will take place on [            ] at [            ], Central Standard Time, at [            ].

 

Q: Why am I receiving these proxy materials?

 

A: The Walgreens Board is soliciting your proxy to vote at the Special Meeting because you owned shares of Walgreens common stock at the close of business on [            ], the record date for the Special Meeting, and are therefore entitled to vote at the Special Meeting. This proxy statement/prospectus is being mailed to shareholders on or about [            ]. This proxy statement/prospectus summarizes the information that you need to know in order to cast your vote at the Special Meeting. You do not need to attend the Special Meeting in person to vote your shares of Walgreens common stock.

 

Q: What am I being asked to vote on?

 

A: You are being asked to consider and vote on three items:

 

  (1) a proposal to approve and adopt the Reorganization Merger Agreement, which Walgreens entered into on October 17, 2014 with Walgreens Boots Alliance, a newly formed Delaware corporation and wholly owned subsidiary of Walgreens, and Merger Sub, a newly formed Illinois corporation and wholly owned subsidiary of Walgreens Boots Alliance, pursuant to which Merger Sub will merge with and into Walgreens and Walgreens will survive the Reorg Merger as a wholly owned subsidiary of Walgreens Boots Alliance, and to approve and adopt the Reorg Merger and the Reorganization;

 

  (2) a proposal to approve the issuance, in a private placement, of shares of (A) if the Reorganization Proposal is approved and the Reorganization completed, Walgreens Boots Alliance common stock or (B) if the Reorganization Proposal is not approved or the Reorganization otherwise not completed, Walgreens common stock, in either case to the Sellers in connection with the completion of the Step 2 Acquisition, and in either case which is currently expected to be 144,333,468 shares, subject to potential adjustment; and

 

  (3) a proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve and adopt the Reorganization Proposal or the Share Issuance Proposal.

The Reorganization is conditioned upon, and will not be completed unless the Share Issuance and the Step 2 Acquisition are completed, even if the requisite number of shareholders vote in favor of the Reorganization Proposal. The Share Issuance and the Step 2 Acquisition are not conditioned on the completion of the Reorganization. If (i) the Share Issuance Proposal is approved and certain conditions to closing set forth in the Purchase and Option Agreement are satisfied or (to the extent permitted by applicable law) waived, and (ii) the Reorganization Proposal is not approved, or the Reorganization is otherwise not completed due to the failure of certain conditions to closing set forth in the Reorganization Merger Agreement to be satisfied (or, to the extent permitted, waived), the termination of the Reorganization Merger Agreement, or otherwise, the Share Issuance and Step 2 Acquisition will be completed through the issuance of shares of Walgreens common stock.


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If the Step 2 Acquisition is completed, holders of Walgreens common stock (Walgreens Boots Alliance common stock if the Reorganization is completed) immediately prior to the Step 2 Acquisition (including the Sellers and their affiliates, to the extent of their ownership immediately prior to the Step 2 Acquisition), in the aggregate, are estimated to hold approximately 86.7% of the pro forma total outstanding shares of the combined company (based on the number of shares of Walgreens common stock outstanding as of October 20, 2014, assuming completion of the Step 2 Acquisition and the issuance of 144,333,468 shares as of that date).

You are only being asked to vote on the adoption of the Reorganization Proposal, the Share Issuance Proposal and the Adjournment Proposal. You are not being asked to vote on any other matter, including the exercise of the Call Option, which already occurred on August 5, 2014.

 

Q: Why is my vote important?

 

A: Your vote “FOR” the proposals related to the Transaction is very important because the presence at the Special Meeting, in person or represented by proxy, of a majority of the outstanding Walgreens shares entitled to vote at the Special Meeting is necessary to constitute a quorum, and because Walgreens cannot complete the Reorganization unless the Reorganization Proposal is approved by the affirmative vote of a majority of the outstanding shares of Walgreens’ common stock, and the Share Issuance Proposal is approved by a majority of the votes cast on the proposal. Walgreens cannot complete the Share Issuance and the Step 2 Acquisition unless the Share Issuance Proposal is approved by a majority of the votes cast on the proposal. The Board recommends that you vote “FOR” the Reorganization Proposal; “FOR” the Share Issuance Proposal; and “FOR” the Adjournment Proposal.

 

Q: What will I receive in the Reorganization?

 

A: You will receive one share of Walgreens Boots Alliance common stock for each share of Walgreens common stock you hold, unless you do not vote to approve the Reorganization Proposal and exercise and perfect your dissenters’ rights under Illinois law. See “The Transactions—Rights of Walgreens Shareholders Dissenting from the Reorganization Merger Agreement and Reorganization.” You will own the same number of shares of Walgreens Boots Alliance common stock as you own of Walgreens common stock immediately prior to the completion of the Reorganization, and, after taking into account the completion of the Step 2 Acquisition, your shares will represent the same ownership percentage of Walgreens Boots Alliance as you would have of Walgreens immediately following the completion of the Step 2 Acquisition without the Reorganization.

 

Q: Will my rights as a shareholder of Walgreens Boots Alliance be different from my rights as a shareholder of Walgreens?

 

A: Yes, in certain respects. As a shareholder of Walgreens (an Illinois corporation), your rights are currently governed by the Illinois Business Corporation Act (the “IBCA”) and Walgreens’ articles of incorporation and bylaws. Upon the completion of the Reorganization you will become a stockholder of Walgreens Boots Alliance (a Delaware corporation), and your rights will be governed by the Delaware General Corporation Law (the “DGCL”) and Walgreens Boots Alliance’s certificate of incorporation and bylaws, which vary in some respects from your rights as a Walgreens shareholder due to differences between the DGCL and the IBCA and between Walgreens’ and Walgreens Boots Alliance’s respective governing documents. For a discussion regarding these differences, please see “Description of Walgreens Boots Alliance Capital Stock” and “Comparison of Shareholder Rights Before and After the Reorganization.”

 

Q: How are outstanding Walgreens equity-based awards treated in the Transactions?

 

A:

In connection with the Reorganization, Walgreen’s equity-based plans will be assumed by Walgreens Boots Alliance and each Walgreens stock option, restricted stock unit award, performance share award and deferred stock unit award outstanding pursuant to these plans as of immediately prior to the effective time of the Reorg Merger will be converted automatically into an equivalent award with respect to the number of

 

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  shares of common stock of Walgreens Boots Alliance that is equal to the number of shares of Walgreens common stock to which such award related immediately prior to the effective time of the Reorg Merger, which equivalent award will otherwise continue to be subject to the same terms and conditions that were applicable to such award immediately prior to the effective time of the Reorg Merger, as set forth in the applicable plan under which the award was granted and in the agreement reflecting the award. If the Reorganization is not completed, then no changes will be made to the outstanding Walgreens stock options, restricted stock unit awards, performance share awards and deferred stock unit awards in connection with the Share Issuance and the Step 2 Acquisition.

 

Q: When does Walgreens expect to complete the Transactions?

 

A: The Board, after careful consideration, has determined that it is in the best interests of Walgreens and its shareholders to exercise the Call Option. We currently expect the Transactions to be completed during the first calendar quarter of 2015.

However, the Step 2 Acquisition cannot be completed until certain conditions to closing set forth in the Purchase and Option Agreement are satisfied (or waived). Accordingly, we cannot assure you when or if the Transactions will occur.

 

Q: How do I vote?

 

A: Shareholders of Record: If you are a shareholder of record, you may vote in person at the Special Meeting or by one of the following methods:

 

    By Mail. Complete, sign and date the enclosed proxy card and return it in the prepaid envelope provided;

 

    By Telephone. Call the toll-free telephone number set forth on the proxy card, [            ], and follow the recorded instructions; or

 

    By Internet. Access the secure Internet website registration page identified on the proxy card and follow the instructions.

Please refer to the specific instructions set forth on the proxy card you received.

Please note that the Internet and telephone voting facilities for shareholders of record will close at [            ] on [            ]. The individuals named as proxies on the proxy card will vote your shares in accordance with your instructions.

Street Name Shareholders: If your shares are held by a broker, bank or other nominee, you should have received instructions on how to vote or instruct the broker to vote your shares from your broker, bank or other nominee. Please follow their instructions carefully. If you give the broker voting instructions, your shares will be voted as you direct. Street name shareholders may generally vote by one of the following methods:

 

    By Mail. If you received a printed copy of the proxy materials, you may vote by signing, dating and returning the voting instruction card sent to you by your broker, bank or other nominee in the pre-addressed envelope provided;

 

    By Methods Listed on Voting Instruction Card. Please refer to your voting instruction card or other information provided by your broker, bank or other nominee to determine whether you may vote by telephone or electronically on the Internet, and follow the instructions on the voting instruction card or other information provided by the record holder; or

 

    In Person with a Proxy from the Record Holder. A street name shareholder who wishes to vote at the Special Meeting will need to obtain a legal proxy from his or her brokerage firm, bank or other nominee and present that proxy and proof of identification at the Special Meeting to vote. Please consult the voting instruction card provided to you by your broker, bank or other nominee to determine how to obtain a legal proxy in order to vote in person at the Special Meeting.

 

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After you have carefully read this document and have decided how you wish to vote your shares, please vote your shares promptly using one of the methods described above.

 

Q: Should I send in my stock certificates now?

 

A: No. Do not turn in your stock certificates. We will not require you to exchange your stock certificates as a result of the Reorganization. After the Reorganization, your Walgreens common stock certificates will represent the same number of shares of Walgreens Boots Alliance common stock.

 

Q: What rights do I have to dissent from the Transactions?

 

A: If you do not vote in favor of the Reorganization Proposal and the Reorganization is completed, you may dissent and obtain payment for the “estimated fair value” of your shares under Illinois law. You must, however, comply with all of the required procedures explained under “The Transactions—Rights of Walgreens Shareholders Dissenting from the Reorganization Merger Agreement and Reorganization” and in Annex G to this proxy statement/prospectus.

You do not have any rights to appraisal or to dissent with respect to the Share Issuance or the Step 2 Acquisition. Accordingly, if the Share Issuance and the Step 2 Acquisition are completed, but the Reorganization is not completed, no appraisal or dissenters rights will be available.

 

Q: If my Walgreens shares are held in street name by my broker, will my broker automatically vote my shares for me?

 

A: No. Your broker cannot vote your shares without instructions from you. You should instruct your broker as to how to vote your shares, following the directions your broker provides to you. Please check the voting form used by your broker.

 

Q: What if I fail to instruct my broker?

 

A: If you do not provide your broker with instructions on how to vote, your broker generally will not be permitted to vote your shares on the Reorganization Proposal or the Share Issuance Proposal, but your broker generally will have discretion to vote your shares on the Adjournment Proposal. If your broker votes your shares with respect to one or more proposals but not with respect to another proposal (for example, because you failed to provide your broker with instructions on how to vote with respect to such other proposal), the failure to vote with respect to such other proposal is known as a “broker non-vote.”

Because the required vote to approve the Reorganization Proposal is based upon the number of Walgreens shares issued and outstanding on the record date and entitled to vote, and the required vote to approve the Adjournment Proposal is based upon the number of Walgreens shares held by shareholders present, in person or by proxy, and entitled to vote, whether or not a quorum exists, and not the number of Walgreens shares that are actually voted, the failure to provide your broker instructions will have the same effect as a vote cast against such proposals. With respect to the Share Issuance Proposal, only those votes cast “for,” “against” or “abstain” with respect to the Share Issuance Proposal are counted and, accordingly, a failure to provide your broker instructions will have no effect on the vote to approve the Share Issuance Proposal. “Broker non-votes,” if any, submitted by brokers or nominees in connection with the Special Meeting, will be treated as present for quorum purposes.

 

Q: Can I attend the Special Meeting and vote my shares in person?

 

A:

Yes. All shareholders, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the Special Meeting in person. Holders of record of Walgreens common stock can vote in person at the Special Meeting. If you are not a shareholder of record, you must obtain a proxy, executed in your favor, from the record holder of your

 

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  shares, such as a broker, bank or other nominee, to be able to vote in person at the Special Meeting. If you plan to attend the Special Meeting in person, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership and you must bring a form of personal photo identification with you to be admitted. Walgreens reserves the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification. The Special Meeting will take place on [            ] at [            ], Central Standard Time, at [            ].

 

Q: Can I change my vote?

 

A: Yes. You may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, or by submitting another proxy via the Internet or by telephone, (2) delivering a written revocation letter to the Secretary of Walgreens or (3) attending the Special Meeting in person, notifying the Corporate Secretary and voting by ballot at the Special Meeting. The mailing address of Walgreens’ Corporate Secretary is Walgreen Co., 108 Wilmot Road, Deerfield, Illinois 60015.

If you are a beneficial owner of shares, you may submit new voting instructions by timely contacting your bank, broker, nominee or other holder of record in accordance with that entity’s procedures. You may also vote in person at the Special Meeting if you obtain a legal proxy.

All shares that have been properly voted and not revoked will be voted at the Special Meeting. The proxy confers discretionary authority to the persons named in the proxy, or their substitutes, to vote on any other business that may properly come before the meeting.

Any shareholder entitled to vote in person at the Special Meeting may vote in person regardless of whether a proxy has been previously given, and such vote will revoke any previous proxy, but the mere presence (without notifying the Secretary of Walgreens and voting by ballot) of a shareholder at the Special Meeting will not constitute revocation of a previously given proxy.

 

Q: Who will bear the cost of soliciting votes for the Special Meeting?

 

A: Walgreens will bear the expenses incurred to solicit proxies. We will pay all costs of preparing, assembling, printing and distributing the proxy materials. Solicitation may be made by mail, facsimile, email, in person and by telephone. Officers, directors and employees of Walgreens may help solicit proxies for no additional compensation.

We will, upon request, reimburse brokerage firms and other nominees or fiduciaries for their reasonable expenses incurred for forwarding solicitation material to beneficial owners of our common stock.

We have retained Innisfree M&A Incorporated to assist in soliciting proxies for a fee of approximately $[        ], plus reasonable out-of-pocket expenses. We may incur additional fees if we request additional services.

 

Q: Have any Walgreens shareholders agreed to support the Transactions?

 

A:

Yes. Each of Stefano Pessina, the Executive Chairman of Alliance Boots, and certain of his affiliates (the “SP Investors”) and Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and certain of its affiliates (the “KKR Investors”) are parties to a Shareholders Agreement, dated as of August 2, 2012, as amended by the Amendment (as amended, the “Shareholders Agreement”), with Walgreens. Among other things, the Shareholders Agreement provides that for so long as the SP Investors and the KKR Investors continue to meet certain Walgreens common stock ownership thresholds and subject to certain other conditions, the SP Investors and the KKR Investors, respectively, will each be entitled to designate one nominee (the “SP Investor Designee” and the “KKR Investor Designee,” respectively) to the Board for inclusion in Walgreens’ slate of directors. The SP Investors and the KKR Investors have agreed, for so long as the SP Investors have the right to designate the SP Investor Designee (or Mr. Pessina continues to serve as Executive Chairperson or Chief Executive Officer of Alliance Boots) and for so long as the KKR Investors

 

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  have the right to designate the KKR Investor Designee, respectively, to vote all of their shares of Walgreens common stock in accordance with the Board’s recommendation on matters submitted to a vote of Walgreens’ shareholders. As of October 20, 2014, the SP Investors owned approximately 7.7%, and the KKR Investors owned approximately 0.7%, of the outstanding shares of Walgreens common stock.

In addition, on September 5, 2014, Walgreens and JANA Partners LLC (“JANA”) entered into a Nomination and Support Agreement (the “Nomination and Support Agreement”) pursuant to which, among other things, on September 5, 2014, Barry Rosenstein of JANA was appointed to the Board. Walgreens has agreed to nominate Mr. Rosenstein for election to the Board at the 2015 annual meeting of shareholders of Walgreens (or, upon completion of the Reorg Merger, of Walgreens Boots Alliance), subject to the terms and conditions set forth in the Nomination and Support Agreement. Under the Nomination and Support Agreement, among other things, until the later of (a) forty-five days prior to the advance notice deadline for the 2016 annual meeting of shareholders and (b) fifteen days after Mr. Rosenstein or another JANA designee is no longer a member of the Board (the “Standstill Period”), JANA has agreed to, and to cause its affiliates and controlled associates to, vote all shares owned beneficially or of record, and that they are entitled to vote, in favor of all incumbent directors nominated by the Board and in accordance with the Board’s recommendation on any other proposals or business that comes before any shareholders meeting, including the Transactions, other than certain specified matters. The Standstill Period is subject to early termination in the event of an uncured material breach of the Nomination and Support Agreement by Walgreens, and will be extended if we voluntarily agree to nominate Mr. Rosenstein at the 2016 annual meeting of shareholders, and any successive annual meeting of shareholders, and Mr. Rosenstein agrees to serve as a director nominee. As of September 5, 2014, JANA and its affiliates and controlled associates beneficially owned approximately 1.3% of the outstanding shares of Walgreens common stock.

 

Q: Whom should I call with questions about the Special Meeting or the Transactions?

 

A: You should call Innisfree M&A Incorporated (Shareholders: (877) 456-3463; Banks & Brokers (call collect): (212) 750-5833) with any questions about the Special Meeting or the Transactions. You can also call Walgreens’ investor relations department at (847) 315-2361.

 

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SUMMARY

This summary highlights information contained elsewhere in this document and may not contain all of the information that is important to you. We urge you to carefully read the entire document and the other documents to which we refer in order to fully understand the Share Issuance, the Step 2 Acquisition, the Reorganization and related transactions. See “Where You Can Find More Information.”

The Companies (page [    ])

Walgreen Co.

Walgreens, together with its subsidiaries, operates the largest drugstore chain in the United States with net sales of $76.4 billion in the fiscal year ended August 31, 2014. Walgreens provides its customers with convenient, omni-channel access to consumer goods and services, pharmacy, and health and wellness services in communities across America. Walgreens offers its products and services through drugstores, as well as through mail, by telephone and online.

Walgreens sells prescription and non-prescription drugs as well as general merchandise, including household items, convenience and fresh foods, personal care, beauty care, photofinishing and candy. Its pharmacy, health and wellness services include retail, specialty, infusion and respiratory services, mail service, and convenient care clinics. These services help improve health outcomes for patients and manage costs for payers including employers, managed care organizations, health systems, pharmacy benefit managers and the public sector. As of August 31, 2014, Walgreens operated 8,309 locations in 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands, including 8,207 drugstores. In addition, Walgreens’ “Take Care Health Systems” subsidiary is a manager of in-store convenient care clinics (Healthcare Clinics), with more than 400 locations throughout the United States.

Walgreen Co. was incorporated as an Illinois corporation in 1909 as a successor to a business founded in 1901. Our principal executive offices are located at 108 Wilmot Road, Deerfield, Illinois 60015, and our telephone number is (847) 315-2500. Walgreens is principally in the retail drugstore business and its operations are within one reportable segment.

Additional information about Walgreens and its subsidiaries is included in documents incorporated by reference into this document. See “Where You Can Find More Information.”

Alliance Boots GmbH (page [    ])

Alliance Boots is a leading international, pharmacy-led health and beauty retailing and pharmaceutical wholesaling and distribution business. As of August 31, 2014, Alliance Boots had, together with its associates and joint ventures, pharmacy-led health and beauty retail businesses in 11 countries and operated more than 4,600 health and beauty retail stores, of which more than 4,450 had a pharmacy, with a growing online presence. In addition, as of March 31, 2014, its fiscal year end, Alliance Boots had approximately 600 optical practices in the United Kingdom, approximately 180 of which operated on a franchise basis. Approximately 30% of its optical practices are located in Boots stores with the balance being standalone practices. In addition, Alliance Boots is a leader in the United Kingdom hearingcare market through its associate, Boots Hearingcare, which operated in approximately 430 locations across the United Kingdom, almost all of which are within Boots stores or standalone Boots Opticians practices. Its pharmaceutical wholesale businesses, together with its associates and joint ventures, supplied medicines, other healthcare products and related services to more than 180,000 pharmacies, doctors, health centers and hospitals from more than 370 distribution centers in 20 countries. Figures regarding Alliance Boots business activities stated above are as of March 31, 2014, with the addition of Farmacias Ahumada S.A. (“Farmacias Ahumada”) data at the date of its acquisition on August 11, 2014, and include its associates and joint ventures.

 

 

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Pharmacy-led Health and Beauty Retailing. Alliance Boots is a market leader in the pharmacy industry with stores located in the United Kingdom, Norway, the Republic of Ireland, The Netherlands, Mexico, Chile, Thailand and Lithuania and through its associates and joint ventures in China, Italy and Croatia. In addition, as of March 31, 2014, there were approximately 80 Boots branded stores operated in the Middle East on a franchised basis. Alliance Boots seeks to locate its stores in convenient locations and to put pharmacists at the heart of healthcare. Alliance Boots pharmacists are well placed to provide a significant role in the provision of healthcare services, working closely with other primary healthcare providers in the communities they serve. Alliance Boots principal retail brand in its Health & Beauty Division is Boots, which Alliance Boots trades under in the United Kingdom, Norway, the Republic of Ireland, The Netherlands and Thailand. The Boots omni-channel offering is differentiated from that of competitors due to a number of factors including the product brands that Alliance Boots owns and “only at Boots” exclusive products.

Pharmaceutical Wholesaling and Distribution. Alliance Boots pharmaceutical wholesaling and distribution businesses seek to provide high core service levels to pharmacists in terms of frequency of delivery, product availability, delivery accuracy, timeliness and reliability at competitive prices. Alliance Boots also offers its customers added-value services that help pharmacists develop their own businesses. This includes membership in Alphega Pharmacy, Alliance Boots pan-European network for independent pharmacies. Alphega Pharmacy had a membership of more than 4,800 pharmacies in seven countries as of March 31, 2014. This is expected to increase significantly following the March 2014 vote by the vivesco pharmacy network in Germany, which has approximately 950 members, to rebrand as Alphega. In addition to the wholesale of medicines and other healthcare products, Alliance Boots provides services to pharmaceutical manufacturers who are increasingly seeking to gain greater control over their product distribution, while at the same time outsourcing non-core activities. These services include pre-wholesale and contract logistics, direct deliveries to pharmacies, and specialized medicine delivery including related home healthcare.

Product Brands. In its Health & Beauty Division, Alliance Boots has product brands such as No7, Soltan and Botanics, together with newer brands such as Boots Pharmaceuticals and Boots Laboratories. Alliance Boots is seeking to continue to internationalize its key product brands, selling them through select retail partners, its own and third party internet shopping sites, and independent pharmacies. In the United States, where Boots product brands have been sold through Target for many years, Alliance Boots is, in addition, introducing No7 and other key Boots product brands into the drugstore channel through certain Walgreens stores on a phased basis. In Europe, its Boots Laboratories line of products was sold by independent pharmacies in five countries as of March 31, 2014. In addition, Alliance Boots has partnerships with a select number of third party brand owners to sell their products in Boots stores on an exclusive basis, sharing in the future brand equity. Alliance Boots recently established a specialist investment fund to invest in small and medium sized consumer brand businesses within the health, wellness, beauty and personal care sector. Alliance Boots also continues to manufacture a significant proportion of its most popular own brand and exclusive products. Through its Pharmaceutical Wholesale Division and associates, Alliance Boots currently sells Almus, its line of generic medicines, in five countries and Alvita, its line of patient care products, in six countries.

The principal executive offices of Alliance Boots are located at Untermattweg 8, CH-3027 Bern, Switzerland, and its telephone number is +41 58 852 8299. Additional information about Alliance Boots and its subsidiaries is included in or incorporated by reference into this proxy statement/prospectus. See “Information about the Companies—Alliance Boots GmbH,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Alliance Boots” included elsewhere in this proxy statement/prospectus and Alliance Boots’ consolidated financial statements incorporated by reference into this proxy statement/prospectus.

Walgreens and Alliance Boots have also established Walgreens Boots Alliance Development GmbH (“WBAD”) in 2012, a 50/50 global sourcing joint venture that Walgreens consolidates for financial reporting purposes. See “Other Agreements and Arrangements.”

 

 

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Walgreens Boots Alliance, Inc.

Walgreens Boots Alliance is a new corporation incorporated under the laws of Delaware and a wholly owned subsidiary of Walgreens. To date, Walgreens Boots Alliance has not conducted any activities other than those incident to its formation, the registration of the securities contemplated hereby and matters related thereto, and financing activities related to the Reorganization and Step 2 Acquisition, and the matters contemplated by the Reorganization Merger Agreement. The address of Walgreens Boots Alliance’s principal executive offices is c/o Walgreen Co., 108 Wilmot Road, Deerfield, Illinois 60015, and its telephone number is (847) 315-2500.

Ontario Merger Sub, Inc.

Merger Sub is a new corporation incorporated under the laws of Illinois and a wholly owned subsidiary of Walgreens Boots Alliance. To date, Merger Sub has not conducted any activities other than those incident to its formation and the matters contemplated by the Reorganization Merger Agreement. The address of Merger Sub’s principal executive offices is c/o Walgreen Co., 108 Wilmot Road, Deerfield, Illinois 60015, and its telephone number is (847) 315-2500.

The Transactions (page [    ])

The Reorganization (page [    ])

The terms and conditions of the Reorganization are contained in the Reorganization Merger Agreement, which is attached as Annex A to this document. Please carefully read the Reorganization Merger Agreement as it is the legal document that governs the proposed Reorganization.

In the Reorganization, Merger Sub, a newly formed Illinois corporation and wholly owned subsidiary of Walgreens Boots Alliance (which, in turn, is a wholly owned subsidiary of Walgreens), will merge with and into Walgreens and Walgreens will survive the Reorg Merger as a wholly owned subsidiary of Walgreens Boots Alliance.

In the Reorganization, your existing shares of Walgreens common stock will be converted automatically into shares of Walgreens Boots Alliance common stock on a one-for-one basis. You will own the same number of shares of Walgreens Boots Alliance common stock as you own of Walgreens common stock immediately prior to the completion of the Reorganization, and, after taking into account the completion of the Step 2 Acquisition, your shares will represent the same ownership percentage of Walgreens Boots Alliance as you would have of Walgreens immediately following the completion of the Step 2 Acquisition without the Reorganization.

See “Description of Walgreens Boots Alliance Capital Stock” and “Comparison of Shareholder Rights Before and After the Reorganization.”

The Alliance Boots “Step 2” Acquisition (page [    ])

The terms and conditions of the Step 2 Acquisition are contained in the Purchase and Option Agreement (the unamended Purchase and Option Agreement is attached as Annex B-1 to this document and the Amendment is attached as Annex B-2 to this document). Please carefully read the Purchase and Option Agreement as it is the legal document that governs the proposed Step 2 Acquisition.

The Amendment, which was entered into on August 5, 2014, amends both the Purchase and Option Agreement and the Shareholders Agreement. Pursuant to the Amendment, the period to exercise the Call Option under the Purchase and Option Agreement to acquire the remaining 55% of Alliance Boots was accelerated to begin on August 5, 2014 and end on February 5, 2015. All material terms and conditions of the Call Option, other than the exercise period, remain the same as under the original Purchase and Option Agreement.

 

 

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The Board, after careful consideration, has determined that it is in the best interests of Walgreens and its shareholders to exercise the Call Option under the Purchase and Option Agreement to acquire the remaining 55% of Alliance Boots that Walgreens does not currently own, for £3.133 billion in cash, payable in British pounds sterling, and 144,333,468 shares of Walgreens Boots Alliance (or Walgreens, as applicable) common stock, subject to certain potential specified adjustments described further in this proxy statement/prospectus. The Call Option was exercised by Walgreens, through an indirect wholly owned subsidiary of Walgreens to which Walgreens previously assigned its rights to the Call Option, on August 5, 2014.

We currently expect to finance the cash consideration, the refinancing of substantially all of Alliance Boots’ total borrowings in connection with the Step 2 Acquisition, and/or the repayment and/or refinancing of $750 million principal amount of Walgreens’ 1.000% notes due 2015 (which will mature on March 13, 2015) with a combination of the issuance of new debt and available cash. See “The Transactions—Financing Matters.” While, as of the date of this document, we have no present intention or plans to do so, it is possible that we will decide to issue common stock, securities convertible into common stock or other equity-linked securities, in a public or private offering, to finance a portion of the Step 2 Acquisition consideration. Under NYSE and NASDAQ rules, any such issuance may be considered part of the Step 2 Acquisition for the purpose of the NYSE and NASDAQ shareholder approval requirement described in “The Walgreens Special Meeting—Voting Rights and Vote Required.” Your approval of the Share Issuance Proposal will constitute approval of the use of shares for such a financing.

Generally (page [    ])

The Reorganization is conditioned upon, and will not be completed unless, the Share Issuance and the Step 2 Acquisition are completed immediately following the completion of the Reorganization, even if the requisite number of shareholders vote in favor of the Reorganization Proposal. The Share Issuance and the Step 2 Acquisition are not conditioned on the completion of the Reorganization. If (i) the Share Issuance Proposal is approved and certain conditions to closing set forth in the Purchase and Option Agreement are satisfied or (to the extent permitted by applicable law) waived, and (ii) the Reorganization Proposal is not approved, or the Reorganization is otherwise not completed due to the failure of certain conditions to closing set forth in the Reorganization Merger Agreement to be satisfied (or, to the extent permitted, waived), the termination of the Reorganization Merger Agreement, or otherwise, the Share Issuance and Step 2 Acquisition will be completed through the issuance of shares of Walgreens (rather than Walgreens Boots Alliance) common stock.

If the Step 2 Acquisition is completed, holders of Walgreens common stock (Walgreens Boots Alliance common stock if the Reorganization is completed) immediately prior to the Step 2 Acquisition (including the Sellers and their affiliates, to the extent of their ownership immediately prior to the Step 2 Acquisition), in the aggregate, are estimated to hold approximately 86.7% of the pro forma total outstanding shares of the combined company (based on the number of shares of Walgreens common stock outstanding as of October 20, 2014, assuming completion of the Step 2 Acquisition and the issuance of 144,333,468 shares as of that date). Based on Alliance Boots’ total borrowings as of March 31, 2014, upon completion of the Step 2 Acquisition, Walgreens Boots Alliance (or Walgreens, as applicable) will assume approximately £5.7 billion of total borrowings (equivalent to approximately $9.5 billion based on exchange rates as of March 31, 2014).

Directors and Executive Officers of Walgreens Boots Alliance Immediately Following the Completion of the Transactions (page [    ])

It is currently expected that, upon completion of the Transactions, the Board of Walgreens as of immediately prior to the completion of the Transactions will continue to serve as directors of Walgreens Boots Alliance following the Transactions. In addition, it is currently expected that, upon closing, the combined enterprise will blend leadership from both companies, including that (1) Mr. Wasson, President and CEO and member of the Board will continue in those roles for Walgreens Boots Alliance, (2) Mr. Skinner, Chairman of the

 

 

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Walgreens Board will continue in that role for Walgreens Boots Alliance and (3) Mr. Pessina, currently a member of the Board and Executive Chairman of Alliance Boots, will continue to serve on the Board of Walgreens Boots Alliance and will chair a new strategy committee of that board, and will serve as executive vice chairman of Walgreens Boots Alliance responsible for strategy and M&A, assisted in this role by Marco Pagni, currently Executive Director of Alliance Boots responsible for M&A, with Mr. Pessina reporting, in that executive capacity, to Mr. Wasson. In addition:

 

    Ms. Barra, chief executive, Wholesale and Brands of Alliance Boots, is expected to become executive vice president of Walgreens Boots Alliance and president and chief executive of global wholesale and international retail;

 

    Mr. Berkowitz, co-president of Walgreens Boots Alliance Development GmbH, is expected to serve as executive vice president of Walgreens Boots Alliance and president of pharma and global market access, which will include responsibility for specialty pharmacy;

 

    Mr. Gourlay, Walgreens executive vice president and president of customer experience and daily living, is expected to become executive vice president of Walgreens Boots Alliance and president of Walgreens;

 

    Mr. McLevish, Walgreens executive vice president and chief financial officer, is expected to serve in that role in a global capacity for Walgreens Boots Alliance;

 

    Mr. Ken Murphy, managing director, Health & Beauty International and Brands of Alliance Boots, is expected to serve as executive vice president of Walgreens Boots Alliance and president of global brands;

 

    Mr. Roberts, managing director, Health & Beauty, UK and the Republic of Ireland of Alliance Boots, is expected to serve as executive vice president of Walgreens Boots Alliance and president of Boots;

 

    Mr. Sabatino, Walgreens executive vice president, chief legal and administrative officer and corporate secretary, is expected to serve as executive vice president and global chief legal and administrative officer of Walgreens Boots Alliance;

 

    Mr. Theriault, Walgreens senior vice president and chief information, innovation and improvement officer, is expected to assume the role of executive vice president and global chief information officer of Walgreens Boots Alliance; and

 

    Ms. Wilson-Thompson, Walgreens senior vice president and chief human resources officer, is expected to become executive vice president and global chief human resources officer of Walgreens Boots Alliance.

Walgreens Boots Alliance is expected to be headquartered in the Chicago area, while Walgreens’ operations are expected to remain headquartered in Deerfield, Illinois and Walgreen Co. will remain an Illinois corporation. Alliance Boots’ operations also are expected to remain headquartered at their current locations in the U.K.

The Reorganization Merger Agreement (page [    ])

The terms and conditions of the Reorganization are contained in the Reorganization Merger Agreement, which is attached as Annex A to this document. Please carefully read the Reorganization Merger Agreement as it is the legal document that governs the proposed Reorganization.

 

 

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Conditions to the Reorg Merger and the Reorganization (page [    ])

The completion of the Reorg Merger depends on the satisfaction or waiver of several conditions, including the following:

 

    adoption of the Reorganization Merger Agreement and approval of the Reorg Merger by Walgreens shareholders;

 

    no law, statute, rule or regulation, order, judgment, writ, injunction, decree, settlement or stipulation exists or has been enacted, entered, promulgated or enforced by any governmental authority, which prohibits or makes illegal the completion of the Reorg Merger;

 

    receipt of necessary regulatory approvals, licenses and third party consents;

 

    the satisfaction or waiver of each of the conditions to closing set forth in the Purchase and Option Agreement with respect to the Step 2 Acquisition, and written confirmation by each of the parties to the Purchase and Option Agreement that each such party stands ready to, and will, consummate the Step 2 Acquisition immediately following the consummation of the Reorg Merger;

 

    the registration statement of which this proxy statement/prospectus forms a part shall have become effective under the Securities Act of 1933, as amended (the “Securities Act”), and there shall be no stop order suspending such effectiveness of such registration statement and no proceeding for such purpose shall be pending before or threatened by the Commission;

 

    the approval of the listing of Walgreens Boots Alliance’s common stock to be issued in connection with the Reorg Merger on such national stock exchanges as determined by Walgreens; and

 

    the receipt by Walgreens of an opinion from Wachtell, Lipton, Rosen & Katz to the effect that the Reorg Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code and/or a transaction described in Section 351 of the Code.

Termination of the Reorganization Merger Agreement (page [    ])

Walgreens may terminate the Reorganization Merger Agreement at any time, even after adoption by Walgreens’ shareholders, if the Board determines to do so. In addition, the Reorganization Merger Agreement will automatically terminate upon the termination of the Purchase and Option Agreement prior to the completion of the Step 2 Acquisition.

The Purchase and Option Agreement (page [    ])

The terms and conditions of the Step 2 Acquisition are contained in the Purchase and Option Agreement (the unamended Purchase and Option Agreement is attached as Annex B-1 to this document and the Amendment is attached as Annex B-2 to this document). Please carefully read the Purchase and Option Agreement as it is the legal document that governs the proposed Step 2 Acquisition.

On August 2, 2012, Walgreens completed the initial investment contemplated by the Purchase and Option Agreement, which resulted in the indirect acquisition by Walgreens of 45% of the issued and outstanding share capital of Alliance Boots in exchange for $4.025 billion in cash and approximately 83.4 million shares of Walgreens common stock (the “First Step Acquisition”).

The Sellers (page [    ])

The principal Seller in the Step 2 Acquisition is AB Acquisitions, a privately held limited company incorporated in Gibraltar, which is jointly controlled by Mr. Pessina, the Executive Chairman of Alliance Boots, and investment funds affiliated with KKR. Mr. Pessina and investment funds affiliated with KKR, directly or indirectly, beneficially own 100% of voting stock in AB Acquisitions and voting and non-voting stock representing, in aggregate, 65.8% of the economic interests in AB Acquisitions. The remaining 34.2% of the

 

 

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economic interests in AB Acquisitions, represented by shares of non-voting stock, are beneficially owned by various co-investors, including persons that hold limited partnership or other equity interests in certain co-investment vehicles which are indirectly jointly controlled by affiliates of Mr. Pessina and affiliates of KKR.

AB Acquisitions currently holds the remaining 55% of the equity interests in Alliance Boots not owned by Walgreens, but participants in Alliance Boots’ Management Equity Plan (the “MEP”) hold, through the trustee of the MEP, approximately 2.7% of the share capital in an intermediate holding company of Alliance Boots. Pursuant to the terms of the MEP, these participants will be entitled to receive a portion of the consideration to be paid by Walgreens on completion of the Step 2 Acquisition. The Purchase and Option Agreement provides that prior to the Step 2 Acquisition, pursuant to the terms of the MEP, the Trustee will exchange the MEP participants’ interest in the Alliance Boots intermediate holding company for Alliance Boots shares, which will be sold along with AB Acquisitions’ Alliance Boots shares to Walgreens. Immediately after the closing of the Step 2 Acquisition, Walgreens will own 100% of Alliance Boots and Alliance Boots will hold 100% of the intermediate holding company, without any minority interests. AB Acquisitions has agreed that the economic impact of these MEP interests and related payments will be borne solely by AB Acquisitions, and not Alliance Boots or Walgreens, out of the proceeds of the Step 2 Acquisition.

The Call Option (page [    ])

The Purchase and Option Agreement provides that, at any time during the period beginning on August 5, 2014 and ending on February 5, 2015, Walgreens had the right to exercise the Call Option to complete the Step 2 Acquisition in exchange for £3.133 billion in cash, payable in British pounds sterling, and 144,333,468 shares of Walgreens common stock (which, if the Reorganization is completed, would be 144,333,468 shares of Walgreens Boots Alliance common stock issued by Walgreens Boots Alliance), subject to certain potential specified adjustments described further in this proxy statement/prospectus.

On August 5, 2014, Walgreens, through an indirect wholly owned subsidiary of Walgreens to which Walgreens previously assigned its rights to the Call Option, exercised the Call Option.

Conditions to the Step 2 Acquisition (page [    ])

The completion of the Share Issuance and Step 2 Acquisition depends on the satisfaction or waiver of several conditions, including the following:

 

    any consents, filings and notices required or, in the reasonable judgment of Walgreens, advisable to be obtained or made at or prior to the Step 2 Acquisition closing under applicable antitrust, competition or certain other applicable law having been obtained or made;

 

    no governmental authority having enacted, issued, enforced or entered into any applicable law or order (whether temporary, preliminary or permanent) that is in effect and has the effect of making the Step 2 Acquisition illegal or otherwise restraining or prohibiting its consummation;

 

    the accuracy of certain fundamental representations of AB Acquisitions and Alliance Boots set forth in the Purchase and Option Agreement;

 

    compliance in all material respects by AB Acquisitions and Alliance Boots with certain fundamental covenants and obligations set forth in the Purchase and Option Agreement, and by AB Acquisitions, Alliance Boots, the KKR Investors and/or the SP Investors (as applicable) with certain contractual obligations;

 

    no “Company Material Adverse Effect” with respect to Alliance Boots (as defined on page [    ]) having occurred; and

 

    approval of the Share Issuance by Walgreens shareholders.

 

 

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In addition, while Walgreens currently intends to consummate the Transactions as promptly as practicable (in view of, among other things, integration planning and financing matters) following the satisfaction of the conditions to closing, the Purchase and Option Agreement provides that, unless otherwise agreed to in writing by Walgreens, Walgreens is not required to consummate the closing of the Step 2 Acquisition prior to March 9, 2015.

Walgreens’ obligation to complete the Step 2 Acquisition is not subject to the receipt of financing. See “The Transactions—Financing Matters.”

Termination of the Purchase and Option Agreement (page [    ])

Walgreens and AB Acquisitions may mutually agree to terminate the Purchase and Option Agreement at any time. In addition, the Purchase and Option Agreement may be terminated as follows:

 

    by either Walgreens or AB Acquisitions, if (i) the closing of the Step 2 Acquisition does not occur by August 5, 2015; or (ii) if any governmental authority has issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the Step 2 Acquisition and such order or other action has become final and non-appealable;

 

    by AB Acquisitions, if Walgreens (i) breaches or fails to perform in any material respect certain fundamental covenants and obligations and such breach or failure to perform is not cured prior to August 5, 2015 or (ii) breaches certain fundamental representations and such breach would result in the failure of specified conditions to closing and is not cured prior to August 5, 2015; or

 

    by Walgreens, if AB Acquisitions or Alliance Boots (and/or in certain cases the KKR Investors and/or the SP Investors, as applicable) (i) breach or fail to perform in any material respect certain fundamental covenants and obligations and such breach or failure to perform is not cured prior to August 5, 2015 or (ii) breach certain fundamental representations and such breach would result in the failure of specified conditions to closing and is not cured prior to August 5, 2015.

The Make-Whole (page [    ])

If the 30-day volume weighted average trading price of Walgreens shares as of the third business day prior to the closing of the Step 2 Acquisition (the “Make-Whole VWAP”) is less than $31.1778, Walgreens would be obligated to deliver additional consideration to the Sellers equal, in aggregate, to the product of (1) the number of Walgreens (or Walgreens Boots Alliance, as applicable) shares otherwise deliverable at the Step 2 Acquisition closing and (2) the difference between the $31.1778 and the Make-Whole VWAP. Walgreens would have the option to pay this amount in any combination of cash (deliverable in British pounds sterling, based on an agreed-upon exchange rate of £1=$1.5478) and/or additional Walgreens (or Walgreens Boots Alliance) shares (valued at the Make-Whole VWAP).

On [                    ], the last full trading day before the date of this document, the high and low sale prices of Walgreens common stock as reported on the NYSE were $[        ] and $[        ], respectively.

Certain Events Under the Purchase and Option Agreement and Related Agreements if the Step 2 Acquisition is Not Completed (page [    ])

If the closing of the Step 2 Acquisition does not occur and the Purchase and Option Agreement is terminated, AB Acquisitions has the right to require Walgreens to return to AB Acquisitions 1/15th of the Alliance Boots shares acquired by Walgreens in the First Step Acquisition, which equals 3% of the issued and outstanding share capital of Alliance Boots, in exchange for nominal consideration of one British pound sterling. However, AB Acquisitions has no right to require this return of Alliance Boots shares under the following circumstances:

 

    breach by AB Acquisitions or Alliance Boots of (1) certain fundamental representations contained in the Purchase and Option Agreement or (2) certain other covenants and contractual obligations in a material respect; or

 

 

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    the failure to close is a result of Walgreens shareholders not approving the Share Issuance in a circumstance where (1) the Board has obtained a fairness opinion from an internationally recognized investment bank, and included such opinion in this proxy statement/prospectus and (2) the Board recommends to Walgreens shareholders that they approve the Share Issuance (subject to a customary “fiduciary out” right, without any adverse modification or withdrawal of such recommendation).

In addition, subject to certain exceptions described in this proxy statement/prospectus, if the closing of the Step 2 Acquisition does not occur, among other things, Walgreens will continue to own a significant minority interest in Alliance Boots (45%, or 42% if the return of 1/15th of the Alliance Boots shares acquired by Walgreens in the First Step Acquisition is required), but certain of Walgreens’ governance rights as a shareholder of Alliance Boots will be modified. See “Alliance Boots Shareholders Agreement” and “Risk Factors—Risks Related to the Step 2 Acquisition—The Step 2 Acquisition is subject to conditions, including certain conditions that may not be satisfied, and may not be completed on a timely basis, or at all. Failure to complete the Step 2 Acquisition could have material and adverse effects on Walgreens.”

Indemnification (page [    ])

AB Acquisitions has agreed that, following the First Step Acquisition and following the Step 2 Acquisition, if it occurs, AB Acquisitions will indemnify Walgreens against losses arising out of (1) breaches of certain fundamental AB Acquisitions or Alliance Boots representations, (2) certain liabilities arising out of the specified Alliance Boots restructuring transactions contemplated by the Purchase and Option Agreement, (3) any liabilities arising out of the restructuring of the MEP and (4) any liabilities arising out of the distribution by AB Acquisitions of the cash and Walgreens (or Walgreens Boots Alliance, as applicable) shares delivered by Walgreens (or Walgreens Boots Alliance, as applicable) at the closing of the First Step Acquisition or the Step 2 Acquisition, as applicable, to the direct and indirect shareholders of AB Acquisitions, including any claims related to the manner, allocation, timing and/or legal compliance of such distribution.

Claims for breaches of fundamental representations generally survived for 15 months following the First Step Acquisition and will survive for 12 months following the closing of the Step 2 Acquisition. Claims for the other indemnification matters described above generally survive until the 9 month anniversary of the Step 2 Acquisition closing.

AB Acquisitions may not distribute any Walgreens (or Walgreens Boots Alliance, as applicable) shares received in connection with the Step 2 Acquisition until the 9 month anniversary of closing. After such date, AB Acquisitions may distribute to its direct and indirect shareholders no more than 10% of the shares until the 12 month anniversary of closing, unless AB Acquisitions elects, prior to the closing, to have Mr. Pessina’s Alliance Boots investment vehicle and each of KKR’s affiliated investment funds enter into a limited guarantee with Walgreens, generally guaranteeing AB Acquisitions’ indemnification obligations until the 12 month anniversary of closing.

Recommendation of the Board; Reasons for the Recommendation to Walgreens Shareholders by the Board (page [    ])

The Board recommends that you vote “FOR” the Reorganization Proposal; “FOR” the Share Issuance Proposal; and “FOR” the Adjournment Proposal.

Opinions of Walgreens’ Financial Advisors (page [    ] and Annex H for Goldman Sachs; page [    ] and Annex I for Lazard)

Goldman, Sachs & Co. (“Goldman Sachs”) delivered its opinion to the Board that, as of August 5, 2014 and based upon and subject to the factors and assumptions set forth therein, the £3,133,000,000 in cash and

 

 

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144,333,468 Walgreens common shares, par value $0.078125 per share (collectively, the “Consideration”), to be paid by an indirect wholly owned subsidiary of Walgreens to acquire the Second Step Company Shares (as defined in the Purchase and Option Agreement) pursuant to the Purchase and Option Agreement was fair from a financial point of view to Walgreens.

The Board also received a written opinion, dated August 5, 2014, from Walgreens’ financial advisor, Lazard Frères & Co. LLC (“Lazard”), to the effect that, as of the date of such opinion and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth in its written opinion, the Consideration to be paid by Walgreens to exercise the Call Option was fair, from a financial point of view, to Walgreens.

The full text of the written opinion of each of Goldman Sachs and Lazard, both dated August 5, 2014, which sets forth assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in connection with each such respective opinion, is attached as Annex H and Annex I, respectively. Goldman Sachs and Lazard each provided its respective opinion for the information and assistance of the Board (in its capacity as such) in connection with its consideration of the acquisition of the Second Step Company Shares. Neither Goldman Sachs’ opinion nor Lazard’s opinion addresses the underlying business decision of Walgreens to engage in the acquisition of the Second Step Company Shares, or the relative merits of the acquisition of the Second Step Company Shares as compared to any strategic alternatives that may be available to Walgreens, or any other aspect of the exercise of the Call Option or the completion of the Step 2 Acquisition. Neither the Goldman Sachs opinion nor the Lazard opinion is a recommendation as to how any Walgreens shareholder should vote with respect to the issuance of the Second Step Buyer Shares (as defined in the Purchase and Option Agreement) or any other matter.

Pursuant to an engagement letter between Walgreens and Goldman Sachs, Walgreens’ has agreed to pay Goldman Sachs fees for its services in connection with the transactions contemplated by the Purchase and Option Agreement, a portion of which was due upon signing of the Purchase and Option Agreement and consummation of the First Step Acquisition, respectively, and a portion of which is contingent upon consummation of the acquisition of the Second Step Company Shares. Pursuant to an engagement letter between Walgreens and Lazard, Walgreens has also agreed to pay Lazard fees, all of which became payable in connection with the delivery of its opinion, regardless of the conclusion reached therein, and has been paid.

For a more complete description, please see the sections of this proxy statement/prospectus entitled “The Transactions—Opinion of Goldman, Sachs & Co., Walgreens’ Financial Advisor,” and “The Transactions—Opinion of Lazard Frères & Co. LLC, Walgreens’ Financial Advisor”. Please also see Annexes H and I to this proxy statement/prospectus.

Material U.S. Federal Income Tax Consequences (page [    ])

The completion of the Reorg Merger is conditioned upon the receipt by Walgreens of an opinion from Wachtell, Lipton, Rosen & Katz satisfactory to Walgreens to the effect that the Reorg Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and/or a transaction described in Section 351(a) of the Code. If the Reorg Merger so qualifies, holders of shares of Walgreens common stock receiving shares of Walgreens Boots Alliance common stock in the Reorg Merger generally will not recognize any gain or loss as a result of the Reorg Merger. For a more detailed discussion, see “Material U.S. Federal Income Tax Consequences.”

Tax matters can be complicated and the tax consequences of the Reorg Merger to any particular holder of shares of Walgreens common stock will depend on such holder’s particular facts and circumstances. Holders of shares of Walgreens common stock should consult their own tax advisors to determine the tax consequences of the Reorg Merger to them, including the effects of U.S. federal, state, local and foreign tax laws.

 

 

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Accounting Treatment (page [    ])

Walgreens Boots Alliance will account for the Transactions using the purchase method of accounting in accordance with generally accepted accounting principles in the United States (“GAAP”), with Walgreens being treated as the accounting acquiror.

Regulatory Approvals (page [    ])

The completion of the Transactions is conditioned on the receipt of antitrust and competition approvals in the Czech Republic, Mexico and Turkey. The parties submitted merger notifications in each of these jurisdictions and have obtained merger clearance in each jurisdiction.

Although Walgreens has obtained merger clearance in the Czech Republic, Mexico, and Turkey, certain jurisdictions can challenge the Transactions on antitrust grounds after the consummation of the Transactions. Although such challenges are unlikely and Walgreens does not believe that the Transactions will violate the applicable laws in any of these jurisdictions, there can be no assurance that a challenge to the Transactions will not be made or, if a challenge is made, of the result of such a challenge.

Rights of Walgreens Shareholders Following the Reorganization (pages [    ] and [    ])

If the Reorganization is completed, the rights of Walgreens shareholders will be governed by Delaware law and by the Walgreens Boots Alliance certificate of incorporation and bylaws, which are included as Annex E and Annex F to this proxy statement/prospectus, respectively. The rights of Walgreens shareholders will vary in some respects as a result of the Reorganization due to differences between the DGCL and the IBCA and between Walgreens’ and Walgreens Boots Alliance’s respective governing documents. This document contains a description of shareholder rights under each of the Walgreens and Walgreens Boots Alliance governing documents and describes the material differences between them.

Interests of Walgreens’ Directors and Officers (page [    ])

Walgreens’ executive officers and members of the Board, and associates of each of the foregoing persons, may be deemed to have interests in the Transactions in addition to, or different from, Walgreens shareholders generally. The Board was aware of and considered these interests in evaluating and negotiating the Purchase and Option Agreement, in evaluating the Call Option and Step 2 Acquisition and in exercising the Call Option, in evaluating the Reorganization Merger Agreement, and in recommending to Walgreens shareholders that they vote to approve the Reorganization Proposal, the Share Issuance Proposal and the Adjournment Proposal.

These interests include:

 

    In connection with the Reorganization, each outstanding Walgreens stock option, restricted stock unit award (including each special transition award described below) and performance share award, including those held by Walgreens executive officers, that is outstanding immediately prior to the effective time of the Reorg Merger will automatically be converted into an equivalent award with respect to the number of shares of Walgreens Boots Alliance common stock that is equal to the number of shares of Walgreens common stock to which such award related immediately prior to the effective time of the Reorg Merger.

 

   

Walgreens has granted special transition awards to certain of its executive officers in connection with the Step 2 Acquisition. Each special transition award is in the form of restricted stock units and will generally vest (1) with respect to 40% of the restricted stock units subject to the award, on the closing date of the Step 2 Acquisition, subject to the executive officer’s continued employment with Walgreens through such date and (2) with respect to 60% of the restricted stock units subject to the award, on the

 

 

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first anniversary of the closing date of the Step 2 Acquisition, subject to (a) the executive officer’s continued employment with Walgreens through the date of such anniversary and (b) the attainment of a company performance goal in respect of the fiscal year ending August 31, 2015.

 

    In connection with the Reorganization, each outstanding Walgreens deferred stock unit award held by a Walgreens non-employee director as of immediately prior to the effective time of the Reorg Merger will automatically be converted into an equivalent award with respect to the number of shares of Walgreens Boots Alliance common stock that is equal to the number of shares of Walgreens common stock to which such award related immediately prior to the effective time of the Reorg Merger.

 

    It is currently expected that, upon completion of the Transactions, the members of the Board as of immediately prior to the completion of the Transactions will continue to serve as directors of Walgreens Boots Alliance following the Transactions and certain of Walgreens executive officers will serve as executive officers of Walgreens Boots Alliance. See “Walgreens’ Directors and Executive Officers May Have Financial Interests in the Transactions—Continuing Executive and Director Positions”.

 

    Entities beneficially owned by Mr. Pessina, a member of the Board, will be entitled to receive a portion of the Step 2 Acquisition consideration through their direct and indirect ownership of equity interests in AB Acquisitions, the principal Seller in the Step 2 Acquisition.

 

    The KKR Investors will be entitled to receive a portion of the Step 2 Acquisition consideration through their direct and indirect ownership of equity interests in AB Acquisitions, the principal Seller in the Step 2 Acquisition; Dominic Murphy, currently a member of the Board, is an executive of KKR and certain of its affiliates and will have an indirect interest in the Step 2 Acquisition consideration received by the KKR Investors and certain other affiliates of KKR.

 

    Mr. Gourlay, currently Walgreens’ executive vice president and president of customer experience and daily living, will be entitled to receive a portion of the Step 2 Acquisition consideration through his participation in the MEP.

 

    Following the consummation of the Step 2 Acquisition, the SP Investors and the KKR Investors will beneficially own a substantial portion of the outstanding shares of Walgreens Boots Alliance (or Walgreens, as applicable) common stock. The SP Investors and the KKR Investors will be entitled to certain rights under the Shareholders Agreement by reason of such share ownership.

Neither Mr. Pessina nor Mr. Murphy voted with respect to any Board determinations and recommendations with respect to the Step 2 Acquisition, including the determination of the Board to exercise the Call Option. For additional information, see “Walgreens’ Directors and Executive Officers May Have Financial Interests in the Transactions,” “Directors and Executive Officers of Walgreens Boots Alliance Immediately Following the Completion of the Transactions” and “Walgreens Shareholders Agreement.”

Listing (page [    ])

If the Reorganization is completed, Walgreens will delist its common stock from the NYSE, NASDAQ and the Chicago Stock Exchange, and will deregister its common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as a result of which Walgreens will no longer be required to file annual, quarterly, current and other reports with the Commission. Shares of Walgreens Boots Alliance common stock are not currently listed on any national securities exchange. If the Reorganization is completed, we currently expect shares of Walgreens Boots Alliance common stock to be listed and trade on one or more U.S. national securities exchanges, and under ticker symbol(s), in each case to be determined and publicly disclosed by Walgreens and Walgreens Boots Alliance prior to the closing of the Reorganization, and Walgreens Boots Alliance will become Walgreens’ successor registrant with the Commission.

 

 

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Dissenters’ Rights of Walgreens Shareholders (page [    ])

Walgreens shareholders who do not vote to adopt the Reorganization Merger Agreement and approve the Reorg Merger and who follow the procedures specified under the IBCA, which procedures are summarized on page [            ] of this proxy statement/prospectus and set forth in their entirety in Annex G to this proxy statement/prospectus, shall have the right to dissent from the Reorganization Merger Agreement and Reorg Merger and obtain payment for the “estimated fair value” of their shares of Walgreens common stock in the event of the completion of the Reorg Merger. Failure to vote against the adoption of the Reorganization Merger Agreement and approval of the Reorg Merger will not waive a shareholder’s dissenters’ rights, as long as the shareholder has not voted in favor of adoption of the Reorganization Merger Agreement and approval of the Reorg Merger and has complied in all other respects with the IBCA in preserving the shareholder’s dissenters’ rights.

Walgreens shareholders do not have any rights to appraisal or to dissent with respect to the Share Issuance or the Step 2 Acquisition. Accordingly, if the Share Issuance and the Step 2 Acquisition are completed, but the Reorganization is not completed, no appraisal or dissenters rights will be available.

 

 

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WALGREENS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data are derived from Walgreens’ audited consolidated financial statements as at and for each of the years ended August 31, 2014, 2013, 2012, 2011, and 2010, all of which have been prepared in accordance with GAAP. This information is not necessarily indicative of future results. You should read this data in conjunction with Walgreens’ “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Walgreens’ consolidated financial statements and notes thereto, in each case included in Walgreens’ Annual Report on Form 10-K for the fiscal year ended August 31, 2014, which is incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.”

 

    Fiscal Year Ended August 31,  
    2014     2013(1)     2012(1)     2011     2010(4)  

Net Sales

  $ 76,392      $ 72,217      $ 71,633      $ 72,184      $ 67,420   

Cost of Sales

    54,823        51,098        51,291        51,692        48,444   

Gross Profit

    21,569        21,119        20,342        20,492        18,976   

Selling, general and administrative expenses

    17,992        17,543        16,878        16,561        15,518   

Gain on sale of business(2)

    —          20        —          434        —     

Equity earnings in Alliance Boots(1)

    617        344        —          —          —     

Operating income

    4,194        3,940        3,464        4,365        3,458   

Interest Expense, net(1)

    (156     (165     (88     (71     (85

Other (expense)/income(3)

    (481     120        —          —          —     

Earnings Before Income Tax Provision

    3,557        3,895        3,376        4,294        3,373   

Income tax provision

    1,526        1,445        1,249        1,580        1,282   

Net Earnings

    2,031        2,450        2,127        2,714        2,091   

Net Earnings attributable to non-controlling interests

    99        —          —          —          —     

Net Earnings attributable to Walgreen Co.

  $ 1,932      $ 2,450      $ 2,127      $ 2,714      $ 2,091   

 

    As of August 31,  
    2014     2013     2012     2011     2010  

Non-Current Liabilities

         

Long-term debt

  $ 3,736      $ 4,477      $ 4,073      $ 2,396      $ 2,389   

Deferred income taxes

    1,048        600        545        343        318   

Other non-current liabilities

    2,942        2,067        1,886        1,785        1,735   

Assets and Equity

         

Total Assets

  $ 37,182      $ 35,481      $ 33,462      $ 27,454      $ 26,275   

Walgreen Co. Shareholders’ Equity

    20,457        19,454        18,236        14,847        14,400   

Noncontrolling interests

    104        —          —          —          —     

Shareholders’ Equity

    20,561        19,454        18,236        14,847        14,400   

Locations

         

Year-end(5)

    8,309        8,582        8,385        8,210        8,046   

 

(1) On August 2, 2012, Walgreens completed the acquisition of 45% of the issued and outstanding share capital of Alliance Boots GmbH (Alliance Boots) in exchange for cash and Walgreens shares. Walgreens accounts for this investment using the equity method of accounting on a three-month lag basis. Because the closing of this investment occurred in August 2012, Walgreens’ financial statements for fiscal 2013 reflect 12 months of the dilutive effect of the incremental shares and interest expense associated with the Alliance Boots investment, but only 10 months (August 2012 through May 2013) of Alliance Boots results, reported as Equity earnings in Alliance Boots.

 

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(2) In fiscal 2011, Walgreens sold its pharmacy benefit management business, Walgreens Health Initiatives, Inc., to Catalyst Health Solutions, Inc. and recorded a pre-tax gain of $434 million. In fiscal 2013, Walgreens recorded an additional pre-tax gain of $20 million relating to a client retention escrow.
(3) In fiscal 2014, Walgreens recognized a non-cash loss of $866 million related to the amendment and exercise of the Alliance Boots call option to acquire the remaining 55% share capital of Alliance Boots. In addition, Walgreens, Alliance Boots and AmerisourceBergen Corporation (AmerisourceBergen) entered into a Framework Agreement, dated as of March 18, 2013, pursuant to which, among other things, Walgreens was issued warrants to purchase AmerisourceBergen common stock. In fiscal 2014 and 2013, Walgreens recorded pre-tax income of $385 million and $120 million, respectively, from fair value adjustments of the warrants and the amortization of the deferred credit associated with the initial value of the warrants.
(4) Includes results of Duane Reade operations since the April 9, 2010 acquisition date.
(5) Locations include drugstores, infusion and respiratory services facilities, specialty pharmacies and mail service facilities. Locations in 2010 through 2013 also included worksite health and wellness centers, which were part of the Take Care Employer business in which we sold a majority interest in fiscal 2014. The foregoing does not include locations of unconsolidated partially owned entities, such as Alliance Boots, of which Walgreens owns 45% of the outstanding share capital.

 

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ALLIANCE BOOTS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data as at and for the fiscal years ended March 31, 2014, 2013, 2012, 2011 and 2010 has been prepared in accordance with International Financial Reporting Standards as issued by International Accounting Standards Board (“IFRS”). The selected historical consolidated financial data as at and for the fiscal years ended March 31, 2014, 2013, and 2012 is derived from the audited consolidated financial statements of Alliance Boots as at and for the fiscal years ended March 31, 2014, 2013 and 2012. The selected historical consolidated financial data as at and for the fiscal years ended March 31, 2011 and 2010 is derived from the historical consolidated financial statements of Alliance Boots as at and for the fiscal years ended March 31, 2011 and 2010, as adjusted retrospectively for the adoption of IAS 19, revised. Alliance Boots’ historical financial information included below for the years ended March 31, 2013, 2012, 2011, 2010 and for a portion of the year ended March 31, 2014 includes the results of the associate investment in Galenica AG (“Galenica”) then owned by Alliance Boots. The Purchase and Option Agreement excluded this associate investment, which was until May 10, 2013 legally owned by Alliance Boots for the benefit of Alliance Boots’ shareholders other than Walgreens, and was transferred to such shareholders on that date. For additional details, see “Unaudited Pro Forma Consolidated Financial Information.”

This proxy statement/prospectus incorporates by reference the audited consolidated financial statements of Alliance Boots prepared in accordance with IFRS and audited in accordance with auditing standards generally accepted in the United States as of and for the fiscal years ended March 31, 2014, 2013 and 2012.

The information set forth below is not necessarily indicative of future results. You should read this data in conjunction with Alliance Boots’ consolidated financial statements incorporated by reference into this proxy statement/prospectus and Alliance Boots’ “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this proxy statement/prospectus.

 

     2014(1)     2013(2)     2012(3)     2011(4)(5)     2010  

for the year ended March 31

   £million     £million     £million     £million     £million  

Continuing operations:

          

Revenue

     23,367        22,406        23,009        19,428        16,911   

Profit from operations before associates and joint ventures

     1,132        1,054        1,033        973        657   

Share of post-tax earnings of associates and joint ventures

     86        39        58        73        98   

Net gains relating to associates

     109        8        —          15        —     

Profit from operations

     1,327        1,101        1,091        1,061        755   

Finance income

     33        109        111        105        183   

Finance costs

     (387     (373     (514     (482     (444

Profit before tax

     973        837        688        684        494   

Tax(6)

     (2     (96     (38     (23     125   

Profit for the year from continuing operations

     971        741        650        661        619   

Discontinued operations:

          

(Loss)/profit for the year from discontinued operations

     —          —          (57     (40     7   

Profit for the year

     971        741        593        621        626   

Attributable to:

          

Equity shareholders of the Company

     936        707        571        601        630   

Non-controlling interests

     35        34        22        20        (4
     971        741        593        621        626   

 

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     2014(1)     2013(2)     2012(3)     2011(4)(5)     2010  

for the year ended March 31

   £million     £million     £million     £million     £million  
as at March 31                               

Total assets

     17,477        19,133        19,352        20,254        18,744   

Current liabilities

     (4,681     (5,712     (4,561     (5,012     (4,019

Non-current borrowings

     (5,444     (6,519     (7,641     (8,274     (8,322

Other non-current liabilities

     (1,129     (1,231     (1,449     (1,844     (2,063

Net assets

     6,223        5,671        5,701        5,124        4,340   

Shareholders’ equity

     6,186        5,500        5,468        4,784        4,311   

Non-controlling interests

     37        171        233        340        29   

Total equity

     6,223        5,671        5,701        5,124        4,340   

 

Financial information for 2011 and 2010 has been restated for the adoption of the revised IAS 19 Employee Benefits standard. Financial information for 2010 has been restated to reflect discontinued operations.

 

(1) In May 2013, the Group (as defined below) distributed its equity interest in Galenica, an associate undertaking.
(2) In October 2012, the Group, together with Walgreens, set up a joint venture company Walgreens Boots Alliance Development as part of their synergy program. References in this “Alliance Boots Selected Historical Consolidated Financial Data” section to the “Group” refer to Alliance Boots GmbH and its subsidiaries and their interests in associates and joint ventures, which includes WBAD.
(3) In March 2012, the Group disposed of a 51% stake in Alliance Healthcare Russia, accounting for the disposal as a discontinued operation. In November 2012, following the formation of the strategic partnership with Walgreens, the 51% was reacquired.
(4) In December 2010, the Group acquired a controlling interest in ANZAG, one of the largest wholesalers in Germany, which was previously an associate undertaking of the Group.
(5) In July 2010, the Group acquired a controlling interest in Hedef Alliance, one of the largest wholesalers in Turkey, which was previously an associate undertaking of the Group.
(6) Tax includes net deferred tax credits mainly resulting from the reduction in UK corporation tax rates enacted in 2014, 2013, 2012 and 2011, and in 2010 from a change in UK tax rules which exempted tax on dividends from substantial shareholdings.

 

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UNAUDITED COMPARATIVE PER SHARE INFORMATION

Set forth below is selected unaudited historical and pro forma per share data in respect of Walgreens shares, Alliance Boots shares and Walgreens Boots Alliance shares. The exchange ratio for the pro forma computations is one Walgreens Boots Alliance share for each Walgreens share. The unaudited pro forma consolidated data below are for illustrative purposes only. You should not rely on this information as being indicative of the historical results that would have been achieved had the companies always been combined or of the future results of Walgreens Boots Alliance. Because the exchange ratio in the Reorg Merger is one Walgreens Boots Alliance share for each Walgreens share, the pro forma per share data presented below would be identical (but in respect of Walgreens shares, and not Walgreens Boots Alliance shares) if assuming for purposes of the data presented below that the Step 2 Acquisition is completed but the Reorganization is not completed. You should read the information below together with the historical financial statements and related notes of Walgreens and Alliance Boots incorporated by reference into this proxy statement/prospectus, and the unaudited pro forma consolidated financial information and the related notes thereto included elsewhere in this proxy statement/prospectus. See “Unaudited Pro Forma Consolidated Financial Information,” “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

In addition, the market price of Walgreens shares could change significantly and may not be indicative of the value of Walgreens Boots Alliance shares once they start trading.

 

     Historical      Unaudited
Pro forma
Combined
 
     Walgreen Co.      Alliance Boots(1)     

Basic Earnings per Share Attributable to Common Stockholders

        

Year ended August 31, 2014

   $ 2.03       $ —         $ 2.69   

Diluted Earnings per Share Attributable to Common Stockholders

        

Year ended August 31, 2014

   $ 2.00       $ —         $ 2.66   

Cash Dividends Declared per Share

        

Year ended August 31, 2014

   $ 1.2825       $ —         $ 1.2825   

Book Value per Share

        

August 31, 2014

   $ 21.52       $ —         $ 23.76   

 

(1) Per share information is presented based on reported results of Walgreen Co. Shares of Alliance Boots are not publicly traded and as a result, historical per share information is not meaningful.

 

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EXCHANGE RATE INFORMATION

The following table show, for the periods indicated, information concerning the exchange rate between the U.S. dollar and British pounds sterling. This information is provided solely for your information, and Walgreens does not represent that British pounds sterling should be converted into U.S. dollars at these rates or at any other rate, or vice versa.

The data provided in the following table is expressed in U.S. dollars per British pound and are based on noon buying rates published by the Federal Reserve Bank of New York for British pounds sterling. On [                    ], the last practicable trading day prior to the date of this document, the exchange rate between the U.S. dollar and British pounds sterling was £1.0000 = $[        ].

 

     Exchange Rates  
     Low      High      Average      Period End  
     (U.S. dollars per British pound)  

Fiscal Year (ended August 31)

           

2010

   $ 1.43       $ 1.68       $ 1.57       $ 1.53   

2011

     1.54         1.67         1.60         1.63   

2012

     1.53         1.63         1.57         1.59   

2013

     1.49         1.63         1.56         1.55   

2014

     1.55         1.72         1.65         1.66   

Month

           

September 2014

     1.61         1.66         1.63         1.62   

October 2014 (through October 20, 2014)

     1.59         1.62         1.61         1.62   

 

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RISK FACTORS

In considering the Transactions and the other matters described in this proxy statement/prospectus, you should carefully review and consider the following risk factors and the other information contained in this proxy statement/prospectus, including the annexes and information incorporated by reference into this proxy statement/prospectus. See “Cautionary Statement Regarding Forward-Looking Statements.”

Risks Relating to Existing Business

Walgreens existing business is, and will continue to be, subject to the risks described in Part I, Item 1A of its annual report on Form 10-K for the year ended August 31, 2014, and any quarterly reports on Form 10-Q filed with the SEC after the date of this proxy statement/prospectus, which risks are incorporated herein by reference. See “Where You Can Find More Information” beginning on page [    ] of this proxy statement/prospectus.

Risks Related to the Step 2 Acquisition

The following risks relate to the Share Issuance and the Step 2 Acquisition, regardless of whether or not the Reorganization is completed. The Reorganization is conditioned upon, and will not be completed unless, the Share Issuance and the Step 2 Acquisition are completed immediately following the completion of the Reorganization. The Share Issuance and the Step 2 Acquisition are not conditioned on the completion of the Reorganization. If (i) the Share Issuance Proposal is approved and certain conditions to closing set forth in the Purchase and Option Agreement are satisfied or (to the extent permitted by applicable law) waived, and (ii) the Reorganization Proposal is not approved, or the Reorganization is otherwise not completed due to the failure of certain conditions to closing set forth in the Reorganization Merger Agreement to be satisfied (or, to the extent permitted, waived), the termination of the Reorganization Merger Agreement, or otherwise, the Share Issuance and the Step 2 Acquisition will be completed through the issuance of shares of Walgreens (rather than Walgreens Boots Alliance) common stock.

The Step 2 Acquisition is subject to conditions, including certain conditions that may not be satisfied, and may not be completed on a timely basis, or at all. Failure to complete the Step 2 Acquisition could have material and adverse effects on Walgreens.

The completion of the Step 2 Acquisition is subject to a number of conditions, including the approval of the Share Issuance Proposal, which makes the completion and timing of the completion of the Step 2 Acquisition uncertain. See “The Purchase and Option Agreement—Conditions to the Step 2 Acquisition” beginning on page [    ] for a more detailed discussion.

If the Step 2 Acquisition is not completed on a timely basis, or at all, our ongoing businesses may be adversely affected and, without realizing any of the benefits of having completed the Step 2 Acquisition, we will be subject to a number of risks, including the following:

 

    Subject to limited exceptions, if the closing of the Step 2 Acquisition does not occur:

 

    Walgreens will be required to return to AB Acquisitions 1/15th of the Alliance Boots shares acquired by Walgreens in the First Step Acquisition, which equals 3% of the issued and outstanding share capital of Alliance Boots, in exchange for nominal consideration of one British pound sterling;

 

    Walgreens will continue to own a significant minority interest in Alliance Boots, but certain of Walgreens’ governance rights as a shareholder of Alliance Boots will be modified;

 

    In general, Walgreens will not be permitted to sell or otherwise transfer any of its Alliance Boots shares for a period of 24 months;

 

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    In the event that AB Acquisitions decides to sell or otherwise transfer its Alliance Boots shares to a third party, AB Acquisitions will have the right to require Walgreens to transfer all its Alliance Boots shares in the same transaction on the same terms; and in the event that AB Acquisitions decides to sell some or all of its Alliance Boots shares in an initial public offering, AB Acquisitions will have the right to require Walgreens to participate proportionally by selling some or all of its Alliance Boots shares;

 

    Alliance Boots will have the right to either (a) acquire 50% of the AmerisourceBergen Corporation (“ABC”) shares then jointly owned by Walgreens and Alliance Boots through a joint venture entity, in exchange for 50% of the funding previously provided by Walgreens to the joint venture entity to acquire ABC shares (plus interest) (a “50/50 dissolution”) or (b) settle with Walgreens in cash to replicate the same economic impact as a 50/50 dissolution, but with Walgreens retaining 100% of the ABC shares; and

 

    If Walgreens subsequently becomes entitled to designate a second director nominee on the ABC board of directors pursuant to the ABC shareholders agreement to which both Walgreens and Alliance Boots are parties, the second director nominee would be an Alliance Boots executive, designated by Walgreens in consultation with and at the direction of Alliance Boots. See “The Purchase and Option Agreement,” “Alliance Boots Shareholders Agreement” and “Other Agreements and Arrangements.”

 

    Walgreens and Alliance Boots currently engage in various commercial transactions and arrangements in connection with initiatives intended to help realize potential synergies across both companies, including through WBAD, a 50/50 global sourcing joint venture. If the Step 2 Acquisition does not occur, the status and prospects of, and future willingness of either Walgreens and/or Alliance Boots to continue to engage in, these transactions and arrangements, including WBAD, would be uncertain. See “Other Agreements and Arrangements.”

 

    The market price of Walgreens common stock could decline to the extent that the current market price reflects a market assumption that the Step 2 Acquisition will be completed.

 

    Uncertainty regarding the completion of the Step 2 Acquisition may foster uncertainty among employees about their future roles, which could adversely affect the ability of Walgreens to attract and retain key personnel.

 

    Walgreens may be unable to capture the anticipated synergies associated with the Transactions, including expected increases in earnings and cost savings.

Walgreens may waive one or more of the conditions to the Step 2 Acquisition.

Each of the conditions to Walgreens’ obligations to complete the Step 2 Acquisition may be waived, in whole or in part, by Walgreens, to the extent permitted by applicable law. The Board will evaluate the materiality of any waiver to determine whether amendment of this proxy statement/prospectus and resolicitation of proxies is necessary. If the Board determines that a waiver is not significant enough to require resolicitation of its shareholders’ proxies, it will have the discretion to complete the Step 2 Acquisition without seeking further shareholder approval. See “The Purchase and Option Agreement—Conditions to the Step 2 Acquisition.” Because certain conditions will not be satisfied prior to the date of the Special Meeting, there is a risk that the Board may waive a condition without your approval.

The anticipated strategic and financial benefits of our transaction with Alliance Boots may not be realized.

Walgreens and Alliance Boots entered into the Purchase and Option Agreement, and Walgreens exercised the Call Option, with the expectation that the transactions contemplated thereby would result in various benefits, including, among other things, procurement cost savings and operating efficiencies, revenue synergies,

 

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innovation, sharing of best practices and a strengthened market position that may serve as a platform for future growth. The processes and initiatives needed to achieve these potential benefits are complex, costly and time-consuming, and Walgreens has not previously completed a transaction comparable in size or scope. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Achieving the expected benefits of the Alliance Boots transaction, including the Step 2 Acquisition, is subject to a number of significant challenges and uncertainties, including, without limitation, whether unique corporate cultures will work collaboratively in an efficient and effective manner, the coordination of geographically separate organizations, the possibility of faulty assumptions underlying expectations regarding potential synergies and the integration process, unforeseen expenses or delays, and competitive factors in the marketplace. We could also encounter unforeseen transaction and integration-related costs or other circumstances such as unforeseen liabilities or other issues existing or arising with respect to the business of Alliance Boots or otherwise resulting from the transaction. Many of these potential circumstances are outside of our control and any of them could result in increased costs, decreased revenue, decreased synergies and the diversion of management time and attention. If we are unable to achieve our objectives within the anticipated time frame, or at all, the expected benefits may not be realized fully or at all, or may take longer to realize than expected, which could have a material adverse impact on our business, financial condition and results of operations and the price of our common stock.

Certain of Walgreens’ directors and executive officers may have interests in the Transactions that are different from, or in addition to, the interests of Walgreens shareholders generally.

In considering the recommendation of the Board with respect to the Transactions, Walgreens shareholders should be aware that certain of Walgreens’ directors and executive officers may have material financial interests in the Transactions that are different from, or in addition to, the interests of Walgreens’ shareholders generally. These interests are described under “Walgreens’ Directors and Executive Officers May Have Financial Interests in the Transactions.”

Moreover, by virtue of their share ownership in Walgreens (which share ownership will increase upon the completion of the Step 2 Acquisition), the Sellers, which include the SP Investors and/or the KKR Investors, may have the power to influence our affairs and the outcome of matters required to be submitted to shareholders for approval. The SP Investors and/or the KKR Investors may have interests that differ from those of holders of our common stock generally, which could give rise to conflicts of interest, including:

 

    conflicts between the SP Investors and/or the KKR Investors and other shareholders, whose interests may differ with respect to our strategic direction or significant corporate transactions; and

 

    conflicts related to corporate opportunities that could be pursued by us, on the one hand, or by the SP Investors and/or the KKR Investors, on the other hand, notwithstanding that the SP Investors are subject to certain non-compete restrictions under the Shareholders Agreement (see “Walgreens Shareholders Agreement—Non-Compete/Non-Solicitation”).

Whether or not the Step 2 Acquisition is completed, the announcement and prospect of the successful completion of the Step 2 Acquisition could cause disruptions in the businesses of Walgreens and/or Alliance Boots, which could have material adverse effects on our business and financial results.

Whether or not the Step 2 Acquisition is completed, the announcement and prospect of the successful completion of the Step 2 Acquisition could cause disruptions in the businesses of Walgreens and/or Alliance Boots. For example, some current and prospective employees may experience uncertainty about their future roles within the combined company, which may adversely affect Walgreens’ and Alliance Boots’ abilities to retain or recruit key managers and other employees. If Walgreens and Alliance Boots fail to manage these risks effectively, our business and financial results could be materially adversely affected.

 

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If there are significant, unforeseen difficulties in integrating the business operations of Alliance Boots, they could adversely affect our business, financial condition and results of operations, and the price of our common stock.

If the Step 2 Acquisition is completed, we intend, to the extent possible, to further integrate the operations of Alliance Boots. Our goal in integrating these operations is to increase revenues through enhanced growth opportunities and achieve cost savings by taking advantage of the anticipated synergies of consolidation. However, we may encounter difficulties further integrating Alliance Boots’ operations with ours, resulting in a delay or the failure to achieve the anticipated synergies, including expected increases in earnings and cost savings. If such difficulties are significant, they could have a material adverse impact on our business, financial condition and results of operations and the price of our common stock.

We may incur higher than expected integration, transaction and acquisition-related costs.

We expect to incur a significant amount of non-recurring costs associated with the Transactions, including legal, accounting, financial and tax advisory and other transaction fees and costs. Some of these costs are payable regardless of whether the Step 2 Acquisition and/or the Reorganization are completed and such costs may be material and/or higher than expected.

Our August 2012 investment in Alliance Boots significantly increased, and the Step 2 Acquisition would significantly further increase, our exposure to the risks of operating internationally.

Prior to the First Step Acquisition, substantially all of our operations were conducted within the United States and its territories. The First Step Acquisition significantly increased the importance of international business to our future operations, growth and prospects. The completion of the Step 2 Acquisition will be a material further step in this direction. A substantial portion of Alliance Boots revenues are generated in the European Union and neighboring countries and substantially all of Alliance Boots revenues are generated outside the United States. Our investment in international business operations is subject to a number of risks, including:

 

    compliance with a wide variety of foreign laws and regulations, including retail and wholesale pharmacy, licensing, tax, foreign trade, intellectual property, privacy and data protection, currency, political and other business restrictions and requirements and local laws and regulations, whose interpretation and enforcement vary significantly among jurisdictions and can change significantly over time;

 

    additional U.S. and other regulation of non-domestic operations, including regulation under the Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-corruption laws;

 

    potential difficulties in managing foreign operations, enforcing agreements and collecting receivables through foreign legal systems;

 

    price controls imposed by foreign countries;

 

    tariffs, duties or other restrictions on foreign currencies or trade barriers imposed by foreign countries;

 

    potential adverse tax consequences, including tax withholding laws and policies and restrictions on repatriation of funds to the United States;

 

    fluctuations in currency exchange rates, including uncertainty regarding the Euro;

 

    impact of recessions and economic slowdowns in economies outside the United States, including foreign currency devaluation, higher interest rates, inflation, and increased government regulation or ownership of traditional private businesses;

 

    the instability of foreign economies, governments and currencies and unexpected regulatory, economic or political changes in foreign markets; and

 

    developing and emerging markets may be especially vulnerable to periods of instability and unexpected changes, and consumers in those markets may have relatively limited resources to spend on products and services.

 

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We cannot assure you that one or more of these factors will not have a material adverse effect on our business, results of operation or financial condition.

Our company will be more exposed to currency exchange rate fluctuations as, following completion of the Step 2 Acquisition, there will be an increased proportion of assets, liabilities and earnings denominated in foreign currencies.

Prior to the First Step Acquisition, substantially all of our operations were conducted within the United States and its territories. The First Step Acquisition significantly increased the potential impact of currency exchange rate fluctuations on our business. If the Step 2 Acquisition is completed, the financial results of the combined company will be more exposed to currency exchange rate fluctuations and an increased proportion of assets, liabilities and earnings will be denominated in non-U.S. dollar currencies.

We will continue to present our financial statements in U.S. dollars and will have a significant proportion of net assets and income in non-U.S. dollar currencies, primarily pounds sterling and the euro, as well as a range of emerging market currencies. Our financial results and capital ratios will therefore be sensitive to movements in foreign exchange rates. A depreciation of non-U.S. dollar currencies relative to the U.S. dollar could have an adverse impact on our financial results.

The Step 2 Acquisition will increase our exposure to certain joint ventures and investments of Alliance Boots over which we would not have sole control. Some of these companies may operate in sectors that differ from our or Alliance Boots’ current operations and have different risks.

The completion of the Step 2 Acquisition will increase our and our shareholders’ effective interest in certain joint ventures and other investments of Alliance Boots over which Alliance Boots does not exercise control. Investments in these businesses, among other risks, subject us to the operating and financial risks of these businesses and to the risk that we do not have sole control over the operations of these businesses. Investments in entities over which we (including through Alliance Boots) do not have sole control, including joint ventures and strategic alliances, present additional risks such as having differing objectives from our partners or the entities in which we or Alliance Boots are invested, or becoming involved in disputes, or competing with those persons. In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us. In addition, Alliance Boots owns a 49% interest in Alliance Healthcare Italia S.p.a., a pharmaceutical wholesaling, distribution and retail pharmacy business operating primarily in Italy, over which AB Acquisitions is, and, following the completion of the Step 2 Acquisition, will remain, the controlling 51% shareholder.

The Step 2 Acquisition, if consummated, would reduce the percentage ownership interests of our current shareholders and the principal shareholders of AB Acquisitions may have significant voting influence over matters requiring shareholder approval.

Upon completion of the Step 2 Acquisition, existing Walgreens shareholders will own a smaller percentage of Walgreens Boots Alliance (or Walgreens) common stock than they currently own. In addition, while, as of the date of this document, we have no present intention or plans to do so, it is also possible that we will decide to issue common stock, or securities convertible into common stock, in a public or private offering to finance the Step 2 Acquisition. Under NYSE and NASDAQ rules, any such issuance may be considered part of the Step 2 Acquisition for the purpose of the NYSE and NASDAQ shareholder approval requirement described in “The Walgreens Special Meeting—Voting Rights and Vote Required.” Your approval of the Share Issuance Proposal will constitute approval of the use of shares for such a financing.

Currently, the SP Investors collectively own approximately 7.7% of the outstanding shares of Walgreens common stock and the KKR Investors collectively own approximately 0.7% of the outstanding shares of Walgreens common stock. While the final allocation between cash and shares to be received by each of the SP

 

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Investors, the KKR Investors, and the other investors in AB Acquisitions (the “Other Investors”) has not yet been determined, the beneficial ownership of each of the SP Investors, the KKR Investors and the Other Investors is expected to significantly increase following completion of the Step 2 Acquisition. AB Acquisitions may not distribute any of the shares of Walgreens Boots Alliance (or Walgreens, as applicable) common stock it will receive on completion of the Step 2 Acquisition to its investors until the date that is nine months after the completion of the Step 2 Acquisition and, unless the SP Investors and the KKR Investors have elected to put certain guarantees in place, may not distribute more than 10% of such shares until the date that is twelve months after the completion of the Step 2 Acquisition. See “The Purchase and Option Agreement – Indemnification”. Accordingly, because the SP Investors and the KKR Investors control 100% of the voting stock of AB Acquisitions, until the date that AB Acquisitions distributes to its investors the shares of Walgreens Boots Alliance (or Walgreens, as applicable) to be received on the completion of the Step 2 Acquisition (referred to below as the “Distribution”), the SP Investors and the KKR Investors may control the voting power of all such shares.

Under the Shareholders Agreement, the SP Investors and the KKR Investors have agreed to, for so long as the SP Investors have the right to designate the SP Investor Designee (or Mr. Pessina continues to serve as Executive Chairperson or Chief Executive Officer of Alliance Boots) and for so long as the KKR Investors have the right to designate the KKR Investor Designee, respectively, vote all of their shares of common stock in accordance with the Board’s recommendation on matters submitted to a vote of Walgreens’ shareholders (including with respect to the election of directors). Whether or not subject to these voting provisions, the SP Investors’ and/or the KKR Investors’ significant interest in our common stock could be determinative in matters submitted to a vote by our shareholders.

Moreover, for so long as the SP Investors and the KKR Investors continue to meet certain beneficial ownership thresholds and subject to certain other conditions, the SP Investors and the KKR Investors, respectively, will each be entitled to designate one nominee to the Board for inclusion in Walgreens’ slate of directors. Mr. Pessina currently serves as the SP Investor Designee and Mr. Dominic Murphy currently serves as the KKR Investor Designee.

The influence of the SP Investors and/or the KKR Investors could result in Walgreens Boots Alliance (or Walgreens, as applicable) taking actions that some other shareholders do not support or failing to take actions that some other shareholders support. See “The Transactions—Walgreens’ Directors and Executive Officers May Have Financial Interests in the Transactions” and “Walgreens Shareholders Agreement.”

Shares issued to significant Alliance Boots shareholders will become available for future sale after the lapse of contractual transfer restrictions.

In connection with the closing of the First Step Acquisition on August 2, 2012, we issued approximately 83.4 million shares of our common stock to Alliance Boots shareholders and entered into the Shareholders Agreement. These shares represented approximately 8.8% of our outstanding shares as of October 20, 2014, the substantial majority of which are held by the SP Investors (approximately 7.7% of our outstanding shares as of October 20, 2014). Pursuant to the Shareholders Agreement, certain significant Alliance Boots shareholders, including the SP Investors and the KKR Investors, are subject to various contractual restrictions that generally prohibit them from transferring their shares for specified time periods. With respect to the shares issued in the First Step Acquisition in August 2012, and subject to certain permitted exceptions, (i) the SP Investors cannot transfer their shares until the first to occur of the closing of the Step 2 Acquisition or Mr. Pessina’s earlier death or permanent disability, and (ii) the KKR Investors cannot transfer their shares until the closing of the Step 2 Acquisition. If the Step 2 Acquisition is completed, with respect to the Walgreens Boots Alliance (or Walgreens, as applicable) shares issued in the Step 2 Acquisition, all Alliance Boots holders receiving such shares (including the SP Investors and the KKR Investors) will be subject to certain restrictions on transfer under the Shareholders Agreement until the date nine months after the closing of the Step 2 Acquisition. We also granted, pursuant to the Shareholders Agreement, certain Alliance Boots shareholders, including the SP Investors and the KKR Investors,

 

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the right to cause us, in certain instances, at our expense, to file registration statements under the Securities Act, covering resales of our common stock held by them or to “piggyback” on a registration statement in certain circumstances. These shares also may be sold pursuant to Rule 144 under the Securities Act, depending on their holding period and subject to restrictions in the case of shares held by persons deemed to be our affiliates. The sale, or possibility of the sale, of a substantial number of shares of our common stock into the market could cause the market price of our common stock to decline. See “Walgreens Shareholders Agreement.”

The amount and mix of consideration required to be paid by us to the Sellers in connection with the Step 2 Acquisition is subject to adjustment in certain circumstances.

If the Step 2 Acquisition is completed, we will acquire the remaining 55% interest in Alliance Boots for £3.133 billion (equivalent to approximately $5.2 billion based on exchange rates as of August 31, 2014) in cash, payable in British pounds sterling, and 144,333,468 shares of Walgreens common stock, subject to the volume weighted average price of Walgreens common stock not being below $31.1778 per share during a period shortly before the closing of the Step 2 Acquisition. However, if the volume weighted average price per share is below that level, the difference in value would be made up by a cash payment or the issuance of additional shares of common stock at Walgreens’ election. In addition, in certain circumstances following a change of control of Walgreens (as defined in the Purchase and Option Agreement) prior to the closing of the Step 2 Acquisition, AB Acquisitions has the right to cause us to pay 100% of the Step 2 Acquisition consideration in cash. These provisions could potentially make the Step 2 Acquisition significantly more costly or inadvisable by increasing the amount of cash and/or stock consideration we are required to pay. If the amount of cash we pay increases, the amount of indebtedness we incur also may increase, and if the amount of stock we are required to deliver increases, the percentage ownership interests of our existing shareholders would further decrease. See “The Purchase and Option Agreement.”

We have significant outstanding debt; our debt will increase if we incur additional debt in the future and do not retire existing debt.

We have outstanding debt and other financial obligations and significant unused borrowing capacity. As of August 31, 2014, we had approximately $4.5 billion of outstanding indebtedness. Our debt level and related debt service obligations could have negative consequences, including:

 

    requiring us to dedicate significant cash flow from operations to the payment of principal, interest and other amounts payable on our debt, which would reduce the funds we have available for other purposes, such as working capital, capital expenditures, acquisitions, share repurchases and dividends;

 

    making it more difficult or expensive for us to obtain any necessary future financing for working capital, capital expenditures, debt service requirements, debt refinancing, acquisitions or other purposes;

 

    reducing our flexibility in planning for or reacting to changes in our industry and market conditions;

 

    making us more vulnerable in the event of a downturn in our business; and

 

    exposing us to interest rate risk given that a portion of our debt obligations is at variable interest rates.

We may incur or assume significantly more debt in the future. See “—We expect to incur significant additional debt in connection with the Step 2 Acquisition” below. If we add new debt and do not retire existing debt, the risks described above could increase.

Our long-term debt obligations include covenants that may adversely affect our ability to incur certain secured indebtedness or engage in certain types of sale and leaseback transactions. In addition, our existing credit agreements require Walgreens to maintain as of the last day of each fiscal quarter a ratio of consolidated debt to total capitalization not to exceed a certain level. Our ability to comply with these restrictions and covenants may be affected by events beyond our control. If we breach any of these restrictions or covenants and do not obtain a

 

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waiver from the lenders, then, subject to applicable cure periods, our outstanding indebtedness could be declared immediately due and payable. Upon completion of the Step 2 Acquisition, Alliance Boots and its subsidiaries may become our direct subsidiaries and therefore become subject to these restrictions and covenants and restrictions and covenants contained in any new debt incurred by Walgreens Boots Alliance in connection with such acquisition or otherwise.

To the extent Alliance Boots will become a direct subsidiary of Walgreens Boots Alliance upon completion of the Step 2 Acquisition, Alliance Boots and its subsidiaries would not be subject to the aforementioned restrictions and covenants in our existing debt but may be subject to restrictions and covenants contained in any new debt incurred by Walgreens Boots Alliance in connection with such acquisition or otherwise.

We expect to incur significant additional debt in connection with the Step 2 Acquisition.

As of March 31, 2014, Alliance Boots had approximately £5.7 billion (equivalent to approximately $9.5 billion based on exchange rates as of March 31, 2014) of total borrowings. In connection with the consummation of the Step 2 Acquisition, we are likely to incur significant additional debt in connection with the financing thereof and the assumption and/or refinancing of substantially all of Alliance Boots’ total borrowings and/or the repayment and/or refinancing of $750 million principal amount of Walgreens’ 1.000% notes due 2015.

As described above under the heading “—We have significant outstanding debt; our debt will increase if we incur additional debt in the future and do not retire existing debt,” we have outstanding debt and other financial obligations and significant unused borrowing capacity that subjects us to certain risks and the incurrence of additional debt in connection with the consummation of the Step 2 Acquisition would cause these risks to increase.

We currently expect to finance the cash consideration, the refinancing of substantially all of Alliance Boots’ total borrowings in connection with the Step 2 Acquisition and/or the repayment and/or refinancing of $750 million principal amount of Walgreens’ 1.000% notes due 2015 with a combination of the issuance of new debt and available cash. See “The Transactions—Financing Matters.”

Our obligation to complete the Step 2 Acquisition is not subject to the receipt of financing. If we are unable to find financing sources on acceptable terms, or at all, we may experience a material adverse effect on our business, results of operation and financial condition.

The amount of goodwill and other intangible assets we have recorded as a result of acquisitions is expected to substantially increase upon completion of the Transactions. In the future, our goodwill or other intangible assets may become impaired, which could result in material non-cash charges to our results of operations.

As of August 31, 2014, we had $3.5 billion of goodwill and other intangible assets. The underlying net assets of Walgreens’ equity method investment in Alliance Boots include goodwill and indefinite-lived intangible assets. Walgreens utilizes a three-month lag in reporting its share of equity income in Alliance Boots. As of March 31, 2014, its most recent fiscal year end, Alliance Boots had £9.9 billion (equivalent to approximately $16.5 billion based on exchange rates as of March 31, 2014) of goodwill and other intangible assets on its group statement of financial position (prepared in accordance with IFRS), which represented approximately 57% of its total assets. Walgreens Boots Alliance will account for the Transactions, if completed, using the purchase method of accounting in accordance with U.S. GAAP, with the purchase price paid allocated to recognize the acquired assets and liabilities at their fair value and Walgreens being treated as the accounting acquiror. While the fair values and associated purchase price allocation will be determined following completion of the Transactions, we anticipate that our goodwill and other intangible assets will increase substantially following completion of the Transactions.

 

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At least annually, or whenever events or changes in circumstances indicate a potential impairment in the carrying value as defined by generally accepted accounting principles in the United States, we will evaluate this goodwill and other intangible assets for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Estimated fair values could change if, for example, there are changes in the business climate, unanticipated changes in the competitive environment, adverse legal or regulatory actions or developments, changes in capital structure, cost of debt, interest rates, capital expenditure levels, operating cash flows, or market capitalization. Because of the significance of our goodwill and intangible assets, any future impairment of these assets could require material non-cash charges to our results of operations and have a material adverse effect on our financial results.

We share certain directors with Alliance Boots and certain of our officers serve on the Alliance Boots Board of Directors, which may give rise to conflicts of interest.

In connection with our initial 45% investment in Alliance Boots on August 2, 2012, we obtained the right to appoint four designees to serve on the Alliance Boots Board of Directors. As of the date of this proxy statement/prospectus, Gregory D. Wasson, President and Chief Executive Officer and a director of Walgreens, Thomas J. Sabatino, Jr., Executive Vice President, Chief Legal and Administrative Officer and Corporate Secretary, and Robert Zimmerman, retired Senior Vice President, International and International Chief Administration Officer and currently a consultant to Walgreens, serve as Walgreens’ representatives on the Alliance Boots Board of Directors. In addition, Mr. Pessina, Executive Chairman of Alliance Boots, and Mr. Dominic Murphy, an Alliance Boots director and an executive of KKR and certain of its affiliates, joined our Board. Mr. Pessina and his affiliates and KKR and its affiliates jointly control AB Acquisitions, which holds the remaining 55% of Alliance Boots. These persons may have actual or apparent conflicts of interest with respect to matters involving or affecting each company. For example, while our contractual arrangements with Alliance Boots place restrictions on the parties’ conduct in various potential conflict situations and related party transactions are subject to review and approval by independent directors in accordance with our related party transaction approval procedures, the potential for a conflict of interest exists when we on one hand, and Alliance Boots on the other hand, consider acquisitions and other corporate opportunities that may be suitable to Alliance Boots and us. Conflicts may also arise if there are issues or disputes under the commercial arrangements that exist between Alliance Boots and us. Similar issues may arise in connection with other investments we make. For example, we and Alliance Boots have the right, but not the obligation, to invest in ABC common stock and to designate up to two members of the ABC board of directors in certain circumstances if we achieve specified ownership thresholds. In May 2014, Walgreens achieved a five percent beneficial ownership threshold and Gregory D. Wasson was designated as a board member of ABC.

Risks Related to the Reorganization

The following risks relate to the Reorganization. The Reorganization is conditioned upon, and will not be completed unless, the Step 2 Acquisition and the Share Issuance are completed immediately following the completion of the Reorganization. See “—Risk Related to the Step 2 Acquisition.”

The value of the shares of Walgreens Boots Alliance common stock that you receive upon the completion of the Reorg Merger may be less than the value of your shares of Walgreens common stock as of the date of the Special Meeting or the closing of the Reorganization.

The exchange ratio of Walgreens common stock for Walgreens Boots Alliance common stock in the Reorganization is fixed at one-to-one and will not be adjusted in the event of any change in the stock price of Walgreens or the value of Alliance Boots before the closing of the Reorganization. The relative price of shares of Walgreens common stock and the value of Alliance Boots may vary significantly between the date of this proxy statement/prospectus, the date of the Special Meeting and the date of the completion of the Transactions. These variations may be caused by, among other things, changes in the businesses, operations and results of Walgreens

 

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and Alliance Boots, market expectations of the likelihood that the Transactions will be completed and the timing of completion, the prospects of post-Transactions operations and synergies, the effect of any conditions or restrictions imposed on or proposed with respect to Walgreens Boots Alliance by regulatory agencies and authorities, general market and economic conditions and other factors. In addition, it is impossible to predict accurately the market price of Walgreens Boots Alliance’s common stock to be received by Walgreens shareholders after the completion of the Reorganization. Accordingly, the price of Walgreens common stock on the date of the Special Meeting may not be indicative of its price immediately before the completion of the Reorganization and the price of Walgreens Boots Alliance’s common stock after the Reorganization is completed.

As a shareholder of Walgreens Boots Alliance, a Delaware corporation, your rights after the Reorganization will vary in some respects from your current rights as a shareholder of Walgreens, an Illinois corporation.

After the completion of the Reorganization, you will become a shareholder of Walgreens Boots Alliance, a public company incorporated in Delaware, instead of Walgreens, a public company incorporated in Illinois. As a result, your rights as a shareholder of Walgreens Boots Alliance will be governed by Delaware corporate law and the Walgreens Boots Alliance certificate of incorporation and bylaws as opposed to Illinois corporate law and the Walgreens articles of incorporation and bylaws. Although many of the differences arising from this change will not have a significant impact on the rights of shareholders, your rights may vary in some respects. For a discussion of these and other differences between Delaware and Illinois corporate law, see “Description of Walgreens Boots Alliance Capital Stock” and “Comparison of Shareholder Rights Before and After the Reorganization.”

The certificate of incorporation and bylaws of Walgreens Boots Alliance, Delaware law and/or the Shareholders Agreement may impede the ability of Walgreens Boots Alliance shareholders to make changes to the Walgreens Boots Alliance Board of Directors or impede a takeover, which could deprive the shareholders of the opportunity to receive a premium for their shares.

Although these provisions generally currently also exist with respect to Walgreens under its governing documents and the IBCA, several provisions of the certificate of incorporation and bylaws of Walgreens Boots Alliance and the DGCL could make it difficult for shareholders to change the composition of the Walgreens Boots Alliance Board of Directors. In addition, the same and other provisions may discourage, delay or prevent a merger, consolidation or acquisition that shareholders may consider favorable. See “Description of Walgreens Boots Alliance Capital Stock,” “Comparison of Shareholder Rights Before and After the Reorganization.” See also the risk factor above, “The Step 2 Acquisition, if consummated, would reduce the percentage ownership interests of our current shareholders and the principal shareholders of AB Acquisitions may have significant voting influence over matters requiring shareholder approval.”

Currently, the SP Investors collectively own approximately 7.7% of the outstanding shares of Walgreens common stock and the KKR Investors collectively own approximately 0.7% of the outstanding shares of Walgreens common stock. While the final allocation between cash and shares to be received by each of the SP Investors, the KKR Investors, and the Other Investors has not yet been determined, the beneficial ownership of each of the SP Investors, the KKR Investors and the Other Investors is expected to significantly increase following completion of the Step 2 Acquisition. AB Acquisitions may not distribute any of the shares of Walgreens Boots Alliance (or Walgreens, as applicable) common stock it will receive on completion of the Step 2 Acquisition to its investors until the date that is nine months after the completion of the Step 2 Acquisition and, unless the SP Investors and the KKR Investors have elected to put certain guarantees in place, may not distribute more than 10% of such shares until the date that is twelve months after the completion of the Step 2 Acquisition. See “The Purchase and Option Agreement – Indemnification”. Accordingly, because the SP Investors and the KKR Investors control 100% of the voting stock of AB Acquisitions, until the date that AB Acquisitions distributes to its investors the shares of Walgreens Boots Alliance (or Walgreens, as applicable) to be received on the completion of the Step 2 Acquisition (referred to below as the “Distribution”), the SP Investors and the

 

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KKR Investors may control the voting power of all such shares. Under the Shareholders Agreement, the SP Investors and the KKR Investors have agreed to, for so long as the SP Investors have the right to designate the SP Investor Designee (or Mr. Pessina continues to serve as Executive Chairperson or Chief Executive Officer of Alliance Boots) and for so long as the KKR Investors have the right to designate the KKR Investor Designee, respectively, vote all of their shares of common stock in accordance with the Walgreens Boots Alliance Board of Directors’ recommendation on matters submitted to a vote of our shareholders (including with respect to the election of directors). See “Walgreens Shareholders Agreement.”

These provisions are not intended, however, to make Walgreens Boots Alliance immune from takeovers and instead are intended to protect Walgreens Boots Alliance shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with them and by providing the Walgreens Boots Alliance Board of Directors with more time to assess any potential acquisition proposal.

As a holding company, Walgreens Boots Alliance will be totally dependent on dividends from its operating subsidiaries to pay dividends and other obligations.

After the completion of the Reorganization, Walgreens Boots Alliance will be a holding company with no business operations of its own. Its only significant asset will be the outstanding capital stock of its subsidiaries. As a result, it will rely on payments from its subsidiaries, including Walgreens and Alliance Boots, to meet its obligations. Additionally, Walgreens Boots Alliance’s subsidiaries may be restricted in their ability to pay cash dividends or to make other distributions to Walgreens Boots Alliance, which may limit the payment of cash dividends or other distributions to the holders of Walgreens Boots Alliance common stock. Credit facilities and other debt obligations of Walgreens Boots Alliance, as well as statutory provisions, may further limit the ability of Walgreens Boots Alliance and its subsidiaries to pay dividends.

We may not obtain the expected benefits of our reorganization into a holding company structure.

We believe our reorganization into a holding company structure will provide us with benefits in the future. These expected benefits may not be obtained if market conditions or other circumstances prevent us from taking advantage of the strategic, business and other potential flexibility that we expect it will afford us. As a result, we may incur the costs of the holding company structure without realizing the possible benefits. In addition, the holding company structure may not be successful in insulating the liabilities of our subsidiaries from each other or from Walgreens Boots Alliance. We or our future subsidiaries may be liable for the liabilities of one another, particularly if we do not observe corporate formalities or adequately capitalize ourselves or our future subsidiaries.

Walgreens Boots Alliance has no operating or financial history, and results of operations may differ significantly from the unaudited pro forma financial information included in this proxy statement/prospectus.

Walgreens Boots Alliance has only recently been incorporated and has no operating history and no revenues. The unaudited pro forma financial information contained in this proxy statement/prospectus is presented for illustrative purposes only, is based on certain assumptions and judgments, contains preliminary estimates, addresses a hypothetical situation and covers only the periods presented. The assumptions used in preparing the unaudited pro forma financial information may not prove to be fully accurate, and other factors may affect Walgreens Boots Alliance’s financial condition or results of operations following the Transactions. Therefore, the pro forma financial information in this proxy statement/prospectus does not necessarily indicate with accuracy the results of operations or the combined financial position that would have resulted had the Transactions been completed on the dates indicated, and it is not necessarily indicative with accuracy of the results of operations in future periods or the future financial position of Walgreens Boots Alliance. Accordingly, Walgreens Boots Alliance’s results of operations and financial condition may differ significantly from those indicated by the unaudited pro forma financial information included in this proxy statement/prospectus. See “Unaudited Pro Forma Consolidated Financial Statements.”

 

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There has been no prior public market for shares of Walgreens Boots Alliance common stock, and the market price of the shares may be volatile.

Walgreens Boots Alliance plans to list its common stock on one or more national securities exchanges to be determined by Walgreens. The market price of shares of Walgreens Boots Alliance common stock may be volatile. Broad general economic, political, market and industry factors may adversely affect the market price of the shares, regardless of Walgreens Boots Alliance’s actual operating performance. In addition to the other risk factors identified in this “Risk Factors” section, factors that could cause fluctuations in the price of the shares include:

 

    actual or anticipated variations in quarterly operating results and the results of competitors;

 

    changes in financial estimates by Walgreens Boots Alliance or by any securities analysts that might cover Walgreens Boots Alliance;

 

    conditions or trends in the industry, including regulatory changes or changes in the securities marketplace;

 

    announcements by Walgreens Boots Alliance or its competitors of significant acquisitions, strategic partnerships or divestitures;

 

    announcements of investigations or regulatory scrutiny of Walgreens Boots Alliance’s operations or lawsuits filed against it;

 

    additions or departures of key personnel; and

 

    issuances or sales of Walgreens Boots Alliance common stock, including sales of shares by its directors and officers or its key investors, including the SP Investors and/or the KKR Investors.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document and other publicly available documents, including the documents incorporated herein and therein by reference, and other documents that we file or furnish with the Commission, contain, and our officers and representatives may from time to time make, forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning Walgreens, Alliance Boots, Walgreens Boots Alliance, the Transactions and other matters that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, on our website or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls, conference calls and other communications. Statements that are not historical facts are forward-looking statements, including, without limitation, statements regarding our future financial and operating performance, as well as forward-looking information concerning our investment in and acquisition of Alliance Boots and the other arrangements and transactions contemplated by the Purchase and Option Agreement with Alliance Boots and their possible effects, our commercial agreement with AmerisourceBergen Corporation, the arrangements and transactions contemplated by our framework agreement with AmerisourceBergen and Alliance Boots and their possible effects, levels of business with Express Scripts customers, the transactions contemplated by the Reorganization Merger Agreement and the proposed Reorganization, estimates of the impact of developments on our earnings, earnings per share and other financial metrics, network participation, cough/cold and flu season, prescription volume, pharmacy sales trends, prescription margins, number and location of new store openings, vendor, payer and customer relationships and terms, possible new contracts or contract extensions, competition, economic and business conditions, outcomes of litigation and regulatory matters, the level of capital expenditures, industry trends, demographic trends, growth strategies, financial results, cost reduction initiatives, acquisition and joint venture synergies, competitive strengths and changes in legislation or regulations. Readers are further cautioned that any information that is, or that contains or is directly or indirectly derived from, financial forecasts, projections or estimates is based on inherently unpredictable and uncertain underlying assumptions and estimates, and is subject to a wide variety of significant business, economic, regulatory and competitive risks and uncertainties. See “Risk Factors.” In addition, any such information has not been updated, is not fact and should not be relied upon as being indicative of future results, and readers of this proxy statement/prospectus are cautioned not to rely on this forward-looking financial information, and such information does not purport to present Walgreens’ or Alliance Boots’ operations in accordance with GAAP or IFRS. Neither Walgreens nor Alliance Boots nor any other person intends to update or otherwise revise any such information to reflect circumstances existing since its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Words such as “expect,” “likely,” “outlook,” “forecast,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “goal,” “target,” “continue,” “sustain,” “synergy,” “on track,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “possible,” “assume,” variations of such words and similar expressions are intended to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that could cause actual results to vary materially from those indicated, including, but not limited to, those relating to the Purchase and Option Agreement and other agreements relating to our strategic partnership with Alliance Boots, the Reorganization Merger Agreement and proposed Reorganization, the arrangements and transactions contemplated thereby and their possible effects, our commercial agreement with AmerisourceBergen, the arrangements and transactions contemplated by our framework agreement with AmerisourceBergen and Alliance Boots and their possible effects, the occurrence of any event, change or other circumstance that could give rise to the termination, cross-termination or modification of any of the transaction documents, the potential impact of announcement of the Transactions or consummation of the Transactions on relationships and terms, including with employees, vendors, payers, customers and competitors, risks that legal proceedings may be initiated related to the Transactions, the parties’ ability to realize anticipated synergies and achieve anticipated financial results, tax, and operating results in the amounts and at the times anticipated, risks

 

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relating to Walgreens’ and Alliance Boots’ ability to successfully integrate our operations, systems and employees, the amount of costs, fees, expenses and charges incurred by Walgreens and Alliance Boots in connection with strategic transactions, the risks associated with transitions in supply arrangements, the ability to retain key personnel, the risks associated with international business operations, the risks associated with governance and control matters in minority investments, the risks associated with cross-border transactions, changes in financial markets, interest rates, and foreign currency exchange rates, the risks that one or more closing conditions to the Transactions may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the Transactions or that the required approvals by Walgreens’ shareholders may not be obtained; the risk of a material adverse change that Walgreens or Alliance Boots or either of their respective businesses may suffer as a result of disruption or uncertainty relating to the Transactions, risks associated with Walgreens’ ability to timely arrange for and consummate financing for the contemplated Transactions on acceptable terms, the risks associated with potential equity investments in AmerisourceBergen including whether the warrants to invest in AmerisourceBergen will be exercised and the financial consequences thereof, changes in vendor, payer and customer relationships and terms, changes in network participation and reimbursement and other terms, levels of business with Express Scripts customers, the implementation, operation and growth of our customer loyalty program, changes in economic and business conditions generally or in the markets in which we or Alliance Boots participate, competition, risks associated with new business areas and activities, risks associated with acquisitions, joint ventures, strategic investments and divestitures, the ability to realize anticipated results from capital expenditures and cost reduction initiatives, outcomes of legal and regulatory matters, and changes in legislation or regulations or interpretations thereof, and those described in the section titled “Risk Factors” above and in other reports that we file or furnish with the Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected or indicated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we do not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement after the date the statement is made, whether as a result of new information, future events, changes in assumptions or otherwise.

 

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MARKET, ECONOMIC AND INDUSTRY DATA

Certain statements regarding Walgreens’ and Alliance Boots’ competitive position are made in this proxy statement/prospectus. Walgreens and Alliance Boots believe these statements to be true based on internal and industry data. The information in this proxy statement/prospectus that has been sourced from independent sources has been accurately reproduced and, as far as Walgreens and Alliance Boots are aware and able to ascertain from the information published by those independent sources, no facts have been omitted that would render the reproduced information inaccurate or misleading. Walgreens and Alliance Boots have not independently verified nor determined the reasonableness of the assumptions used by their compilers. Nor has data from independent sources been audited in any manner.

 

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THE WALGREENS SPECIAL MEETING

This section contains information about the Special Meeting of Walgreens shareholders that has been called to approve the Reorganization and adopt the Reorganization Merger Agreement, and approve the Share Issuance in connection with the Step 2 Acquisition.

Together with this document, Walgreens is sending its shareholders a notice of the Special Meeting and a form of proxy that is solicited by the Board.

The Special Meeting will be held at [            ], at [            ], [            ].m., on [                    ], subject to any adjournments or postponements.

Matters to Be Considered

The following proposals will be considered at the Special Meeting:

 

    Item 1 on the Proxy Card—a proposal to approve and adopt the Agreement and Plan of Merger, dated as of October 17, 2014 (the “Reorganization Merger Agreement”), which Walgreens entered into with Walgreens Boots Alliance, a newly formed Delaware corporation and wholly owned subsidiary of Walgreens, and Merger Sub, a newly formed Illinois corporation and wholly owned subsidiary of Walgreens Boots Alliance, pursuant to which Merger Sub will merge with and into Walgreens (the “Reorg Merger”) and Walgreens will survive the Reorg Merger as a wholly owned subsidiary of Walgreens Boots Alliance, and to approve and adopt the Reorg Merger and the Reorganization (the “Reorganization Proposal”);

 

    Item 2 on the Proxy Card—a proposal to approve the issuance, in a private placement, of shares of (A) if the Reorganization Proposal is approved and the Reorganization completed, Walgreens Boots Alliance common stock or (B) if the Reorganization Proposal is not approved or the Reorganization otherwise not completed, Walgreens common stock, in either case to the Sellers in connection with the completion of the Step 2 Acquisition, and in either case which is currently expected to be 144,333,468 shares, subject to potential adjustment (the “Share Issuance Proposal”);

 

    Item 3 on the Proxy Card—a proposal to approve the adjournment of the Special Meeting, if necessary or appropriate to solicit additional proxies if there are not sufficient votes to approve and adopt the Reorganization Proposal or the Share Issuance Proposal (the “Adjournment Proposal”); and

 

    such other business as may properly come before the Special Meeting and any adjournment or postponement thereof.

The Board recommends that you vote “FOR” the Reorganization Proposal; “FOR” the Share Issuance Proposal; and “FOR” the Adjournment Proposal. For a discussion of interests of Walgreens’ directors and executive officers in the Transactions that may be different from, or in addition to, the interests of Walgreens shareholders generally, see the section entitled “The Transactions—Walgreens’ Directors and Executive Officers May Have Financial Interests in the Transactions” beginning on page [    ].

Proxies

Shareholders of Record: If you are a shareholder of record, you may vote in person at the Special Meeting or by one of the following methods:

 

    By Mail. Complete, sign and date the enclosed proxy card and return it in the prepaid envelope provided;

 

    By Telephone. Call the toll-free telephone number set forth on the proxy card, [            ], and follow the recorded instructions; or

 

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    By Internet. Access the secure Internet website registration page identified on the proxy card and follow the instructions.

Please refer to the specific instructions set forth on the proxy card you received.

Please note that the Internet and telephone voting facilities for shareholders of record will close at [            ] on [            ]. The individuals named as proxies on the proxy card will vote your shares in accordance with your instructions.

Street Name Shareholders: If your shares are held by a broker, bank or other nominee, you should have received instructions on how to vote or instruct the broker to vote your shares from your broker, bank or other nominee. Please follow their instructions carefully. If you give the broker voting instructions, your shares will be voted as you direct. Street name shareholders may generally vote by one of the following methods:

 

    By Mail. If you received a printed copy of the proxy materials, you may vote by signing, dating and returning the voting instruction card sent to you by your broker, bank or other nominee in the pre-addressed envelope provided;

 

    By Methods Listed on Voting Instruction Card. Please refer to your voting instruction card or other information provided by your broker, bank or other nominee to determine whether you may vote by telephone or electronically on the Internet, and follow the instructions on the voting instruction card or other information provided by the record holder; or

 

    In Person with a Proxy from the Record Holder. A street name shareholder who wishes to vote at the Special Meeting will need to obtain a legal proxy from his or her brokerage firm, bank or other nominee and present that proxy and proof of identification at the Special Meeting to vote. Please consult the voting instruction card provided to you by your broker, bank or other nominee to determine how to obtain a legal proxy in order to vote in person at the Special Meeting.

All shares that have been properly voted and not revoked will be voted at the Special Meeting. The proxy confers discretionary authority to the persons named in the proxy, or their substitutes, to vote on any other business that may properly come before the meeting.

You may revoke any proxy at any time before it is voted by:

 

    signing and returning a proxy card with a later date, or by submitting another proxy via the Internet or by telephone;

 

    delivering a written revocation letter to the Secretary of Walgreens; or

 

    attending the Special Meeting in person, notifying the Secretary and voting by ballot at the Special Meeting.

Any shareholder entitled to vote in person at the Special Meeting may vote in person regardless of whether a proxy has been previously given, and such vote will revoke any previous proxy, but the mere presence (without notifying Walgreens’ Secretary and voting by ballot) of a shareholder at the Special Meeting will not constitute revocation of a previously given proxy.

The mailing address of Walgreens’ Secretary is:

Walgreen Co.

108 Wilmot Road

Deerfield, Illinois 60015

Attention: Corporate Secretary

 

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If you are a beneficial owner of shares, you may submit new voting instructions by timely contacting your bank, broker, nominee or other holder of record in accordance with that entity’s procedures. You may also vote in person at the Special Meeting if you obtain a legal proxy.

All shares represented by valid proxies that Walgreens receives through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” the Reorganization Proposal; “FOR” the Share Issuance Proposal; and “FOR” the Adjournment Proposal. The Board is not currently aware of any business to be acted upon at the Special Meeting other than the matters described in this document. If, however, other matters are properly brought before the Special Meeting, the persons appointed as proxies will have discretion to vote or act on those matters as in their judgment is in the best interest of Walgreens and its shareholders.

Solicitation of Proxies

Walgreens will bear the costs and expenses incurred in connection with the filing, printing and mailing of this document, and the costs and expenses incurred in connection with the retention of any information agent or other service provider in connection with the Transactions. This proxy solicitation is being made by Walgreens on behalf of the Board. Walgreens has retained Innisfree M&A Incorporated to assist in the solicitation of proxies. For these services, Walgreens will pay Innisfree M&A Incorporated a fee of approximately $[        ] and reimburse it for certain out-of-pocket disbursements and expenses. In addition to this mailing, proxies may be solicited by directors, officers or employees of Walgreens or its affiliates in person or by telephone or electronic transmission. None of the directors, officers or employees will be directly compensated for such services.

Record Date

The close of business on [            ] has been fixed as the record date for determining the Walgreens shareholders entitled to receive notice of and to vote at the Special Meeting. At that time, approximately [            ] shares of Walgreens common stock were outstanding and held by approximately [            ] holders of record.

Who Is Eligible to Vote

Only Walgreens shareholders of record at the close of business on the record date will be entitled to vote at the Special Meeting. Each share of Walgreens common stock is entitled to one vote. As of the record date, there were approximately [            ] shares of Walgreens common stock entitled to vote at the Special Meeting.

Voting Rights and Vote Required

The presence at the Special Meeting of the holders, present in person or represented by proxy, of a majority of the shares of Walgreens common stock entitled to vote at the Special Meeting is necessary to constitute a quorum. Abstentions and any broker non-votes will be counted for the purpose of determining whether a quorum is present.

Under applicable Illinois law and the Walgreens articles of association, the affirmative vote of the holders of at least a majority of the outstanding shares of Walgreens common stock entitled to vote as of the record date is required to approve the Reorganization Proposal. Any adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the Reorganization Proposal and/or the Share Issuance Proposal requires the affirmative vote of holders of a majority of the shares of Walgreens common stock present at the Special Meeting, in person or by proxy, and entitled to vote, whether or not a quorum exists. Because the required vote to approve the Reorganization Proposal is based upon the number of shares of Walgreens common stock issued and outstanding on the record date and entitled to vote, and the required vote for the Adjournment

 

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Proposal is based upon the number of shares of Walgreens common stock held by shareholders present, in person or by proxy, and entitled to vote, and not the number of shares of Walgreens common stock that are actually voted, abstentions and any broker non-votes will have the same effect as a vote cast against such proposals.

Pursuant to applicable NYSE and NASDAQ listing rules, subject to certain limited exceptions, the issuance of shares to certain related parties requires a shareholder vote. Specifically, NYSE Rule 312.03(b)(1) states: “[s]hareholder approval is required prior to the issuance of common stock . . . in any transaction or series of related transactions, to . . . a director, officer or substantial security holder of the company.” Similarly, NASDAQ Rule 5635(a)(2) states: “[s]hareholder approval is required prior to the issuance of securities in connection with the acquisition of the stock or assets of another company if . . . any director, officer or Substantial Shareholder . . . has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the present or potential issuance of common stock . . . could result in an increase in outstanding common shares or voting power of 5% or more.” Accordingly, a shareholder vote is required to approve the issuance of shares (by either Walgreens Boots Alliance or Walgreens, as applicable) to the SP Investors and the KKR Investors.

In addition, while, as of the date of this document, we have no present intention or plans to do so, it is also possible that we will decide to issue common stock, or securities convertible into common stock, in a public or private offering to finance the Step 2 Acquisition. Any such issuance may be considered part of the Step 2 Acquisition for purposes of the NYSE and NASDAQ shareholder approval requirements. Your approval of the Share Issuance Proposal will constitute approval of the use of shares for such a financing.

Approval of the Share Issuance Proposal requires a majority of the votes cast on the Share Issuance Proposal at the Special Meeting. Only those votes cast “for,” “against” or “abstain” with respect to the Share Issuance Proposal are counted and, accordingly, a failure to provide your broker instructions will have no effect on the vote to approve the Share Issuance Proposal. An abstention will have the same effect as a vote cast against the Share Issuance Proposal.

As of the record date, and including the SP Investors and the KKR Investors, directors and executive officers of Walgreens and its affiliates had the right to vote approximately [            ] shares of Walgreens common stock, or [    ]% of the outstanding shares of Walgreens common stock at that date.

Shareholders Agreement

Each of the SP Investors and the KKR Investors are parties to the Shareholders Agreement with Walgreens. Among other things, the Shareholders Agreement provides that for so long as the SP Investors and the KKR Investors continue to meet certain Walgreens common stock ownership thresholds and subject to certain other conditions, the SP Investors and the KKR Investors, respectively, will each be entitled to designate one nominee to the Board for inclusion in Walgreens’ slate of directors. With respect to the designation right of the SP Investors and Mr. Pessina as such designee, Walgreens has waived and agreed to take all necessary and appropriate action to continue to waive any mandatory retirement age policy otherwise applicable to membership on the Board. The SP Investors and the KKR Investors have agreed, for so long as the SP Investors have the right to designate the SP Investor Designee (or Mr. Pessina continues to serve as Executive Chairperson or Chief Executive Officer of Alliance Boots or is otherwise involved in an operational or management role at Alliance Boots or Walgreens) and for so long as the KKR Investors have the right to designate the KKR Investor Designee, respectively, to vote all of their shares of Walgreens common stock in accordance with the Board’s recommendation on matters submitted to a vote of Walgreens’ shareholders. As of October 20, 2014, the SP Investors owned approximately 7.7%, and the KKR Investors owned approximately 0.7%, of the outstanding shares of Walgreens common stock.

 

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Nomination and Support Agreement

On September 5, 2014, Walgreens and JANA entered into the Nomination and Support Agreement pursuant to which, among other things, on September 5, 2014, Barry Rosenstein of JANA was appointed to the Board. In addition, Walgreens agreed to nominate Mr. Rosenstein for election to the Board at the 2015 annual meeting of shareholders of Walgreens (or, upon completion of the Reorg Merger, of Walgreens Boots Alliance), subject to the terms and conditions set forth in the Nomination and Support Agreement. Under the Nomination and Support Agreement, among other things, until the later of (a) forty-five days prior to the advance notice deadline for the 2016 annual meeting of shareholders and (b) fifteen days after Mr. Rosenstein or another JANA designee is no longer a member of the Board, JANA has agreed to, and to cause its affiliates and controlled associates to, vote all shares owned beneficially or of record, and that they are entitled to vote, in favor of all incumbent directors nominated by the Board and in accordance with the Board’s recommendation on any other proposals or business that comes before any shareholders meeting, including the Transactions, other than certain specified matters. The Standstill Period is subject to early termination in the event of an uncured material breach of the Nomination and Support Agreement by Walgreens, and will be extended if we voluntarily agree to nominate Mr. Rosenstein at the 2016 annual meeting of shareholders, and any successive annual meeting of shareholders, and Mr. Rosenstein agrees to serve as a director nominee. As of September 5, 2014, JANA and its affiliates and controlled associates beneficially owned approximately 1.3% of the outstanding shares of Walgreens common stock.

Attending the Meeting

All Walgreens shareholders, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the Special Meeting in person. Walgreens shareholders of record can vote in person at the Special Meeting. If you are not a shareholder of record, you must obtain a proxy executed in your favor from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the Special Meeting. If you plan to attend the Special Meeting in person, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership and you must bring a form of personal photo identification with you in order to be admitted. Walgreens reserves the right to refuse admittance to anyone without both proper proof of share ownership and proper photo identification.

Adjournments and Postponements

The Special Meeting may be adjourned upon the affirmative vote of the holders of a majority of the shares of Walgreens common stock present at the Special Meeting, in person or by proxy, and entitled to vote, whether or not a quorum exists. The Special Meeting may be adjourned without notice other than announcement at the Special Meeting.

In addition, at any time prior to convening the Special Meeting, the Board may postpone the Special Meeting without the approval of Walgreens’ shareholders. If postponed, Walgreens will publicly announce the new meeting date. Similar to adjournments, any postponement of the Special Meeting for the purpose of soliciting additional proxies will allow Walgreens shareholders who have already sent in their proxies to revoke them at any time prior to their use.

 

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THE TRANSACTIONS

General Description of the Transactions

The Reorganization

The terms and conditions of the Reorganization are contained in the Reorganization Merger Agreement, which is attached as Annex A to this document. Please carefully read the Reorganization Merger Agreement as it is the legal document that governs the proposed Reorganization.

In the Reorganization, Merger Sub, a newly formed Illinois corporation and wholly owned subsidiary of Walgreens Boots Alliance (which, in turn, is a wholly owned subsidiary of Walgreens), will merge with and into Walgreens and Walgreens will survive the Reorg Merger as a wholly owned subsidiary of Walgreens Boots Alliance.

In the Reorganization, your existing shares of Walgreens common stock will be converted automatically into shares of Walgreens Boots Alliance common stock on a one-for-one basis. You will own the same number of shares of Walgreens Boots Alliance common stock as you own of Walgreens common stock immediately prior to the completion of the Reorganization, and, after taking into account the completion of the Step 2 Acquisition, your shares will represent the same ownership percentage of Walgreens Boots Alliance as you would have of Walgreens immediately following the completion of the Step 2 Acquisition without the Reorganization. As a shareholder of a public Delaware corporation (i.e., Walgreens Boots Alliance) your rights will vary in some respects from your rights as a shareholder of Walgreens, an Illinois corporation. See “Description of Walgreens Boots Alliance Capital Stock” and “Comparison of Shareholder Rights Before and After the Reorganization.”

The Step 2 Acquisition

The terms and conditions of the Step 2 Acquisition are contained in the Purchase and Option Agreement (the unamended Purchase and Option Agreement is attached as Annex B-1 to this document and the Amendment is attached as Annex B-2 to this document). Please carefully read the Purchase and Option Agreement as it is the legal document that governs the proposed Step 2 Acquisition.

The Board, after careful consideration, has determined that it is in the best interests of Walgreens and its shareholders to exercise the Call Option under the Purchase and Option Agreement to acquire the remaining 55% of Alliance Boots that Walgreens does not currently own, for £3.133 billion in cash, payable in British pounds sterling, and 144,333,468 shares of Walgreens Boots Alliance common stock (or Walgreens common stock, as applicable), subject to certain potential specified adjustments described further in this proxy statement/prospectus. The shares issued pursuant to the Step 2 Acquisition will be issued in a transaction exempt from the registration requirements of the Securities Act and, accordingly, will not be registered pursuant to the registration statement of which this proxy statement/prospectus forms a part. On August 5, 2014, Walgreens, through an indirect wholly owned subsidiary of Walgreens to which Walgreens previously had assigned its rights to the Call Option, exercised the Call Option.

Generally

The Reorganization is conditioned upon, and will not be completed unless, the Share Issuance and the Step 2 Acquisition are completed immediately following the completion of the Reorganization, even if the requisite number of shareholders vote in favor of the Reorganization Proposal. The Share Issuance and the Step 2 Acquisition are not conditioned on the completion of the Reorganization. If (i) the Share Issuance Proposal is approved and certain conditions to closing set forth in the Purchase and Option Agreement are satisfied or (to the extent permitted by applicable law) waived, and (ii) the Reorganization Proposal is not approved, or the Reorganization is otherwise not completed due to the failure of certain conditions to closing set forth in the Reorganization Merger Agreement to be satisfied (or, to the extent permitted, waived), the termination of the

 

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Reorganization Merger Agreement, or otherwise, the Share Issuance and Step 2 Acquisition will be completed through the issuance of shares of Walgreens (rather than Walgreens Boots Alliance) common stock.

If the Step 2 Acquisition is completed, holders of Walgreens common stock (Walgreens Boots Alliance common stock if the Reorganization is completed) immediately prior to the Step 2 Acquisition (including the Sellers and their affiliates, to the extent of their ownership immediately prior to the Step 2 Acquisition), in the aggregate, are estimated to hold approximately 86.7% of the pro forma total outstanding shares of the combined company (based on the number of shares of Walgreens common stock outstanding as of October 20, 2014, assuming completion of the Step 2 Acquisition and the issuance of 144,333,468 shares as of that date). Based on Alliance Boots’ total borrowings as of March 31, 2014, upon completion of the Step 2 Acquisition, Walgreens Boots Alliance (or Walgreens, as applicable) will assume approximately £5.7 billion of net debt (equivalent to approximately $9.5 billion based on exchange rates as of March 31, 2014).

Background of the Transactions

On August 2, 2012, Walgreens completed the initial investment contemplated by the Purchase and Option Agreement, which resulted in the acquisition by Walgreens of 45% of the issued and outstanding share capital of Alliance Boots in exchange for $4.025 billion in cash and 83,392,670 shares of Walgreens common stock. The Purchase and Option Agreement also provided that at any time during the period beginning on February 2, 2015 and ending on August 2, 2015 (referred to in this discussion as the option exercise period), Walgreens would have the right to exercise the Call Option to complete the Step 2 Acquisition in exchange for £3.133 billion in cash, payable in British pounds sterling, and 144,333,468 shares of Walgreens common stock, subject to certain potential specified adjustments. As announced in June 2012, the two-step transaction structure was designed to allow synergies to be realized by the respective management teams of Walgreens and Alliance Boots working closely together on key projects, while progressing to full integration in approximately three years. Walgreens and Alliance Boots believed that this transaction structure would maximize the potential for value creation, while minimizing the initial business disruption and allowing time for thoughtful integration planning.

Since the closing of the First Step Acquisition, Walgreens and Alliance Boots have engaged in various commercial transactions and arrangements from time to time in connection with initiatives intended to help realize potential synergies across both companies. The two companies have also engaged in significant collaboration and planning in contemplation of Walgreens’ potential exercise of the Call Option in 2015. In 2012, Walgreens and Alliance Boots established WBAD, a 50/50 global sourcing joint venture. Walgreens and Alliance Boots also implemented and pursued initiatives focused on (1) the sharing of best practices across both organizations, (2) exploring potential front-end merchandising opportunities, including the roll-out of certain Boots products in Walgreens stores in select United States markets, and (3) exchanging key management talent and knowledge, including through the secondment of both Alliance Boots executives to Walgreens and Walgreens executives to Alliance Boots. See “Other Agreements and Arrangements.” In addition, pursuant to the Shareholders Agreement, since August 2, 2012, Stefano Pessina, the Executive Chairman of Alliance Boots, and Dominic Murphy, a partner of KKR, have been members of the Board; and pursuant to the AB Shareholders Agreement, since August 2, 2012, Walgreens executives, including Gregory D. Wasson, Walgreens President and Chief Executive Officer, Thomas J. Sabatino, Walgreens Executive Vice President, Chief Legal and Administrative Officer and Corporate Secretary, and Robert Zimmerman, Walgreens Senior Vice President of International and International Chief Administration Officer (until April 2014), have served on the board of Alliance Boots.

In addition, on March 19, 2013, Walgreens, in conjunction with Alliance Boots, announced various agreements and arrangements with AmerisourceBergen Corporation, including a ten-year pharmaceutical distribution agreement between Walgreens and ABC pursuant to which Walgreens will purchase branded and generic pharmaceutical products from ABC, an agreement providing ABC the ability to access generics and related pharmaceutical products through WBAD, and agreements and arrangements pursuant to which Walgreens

 

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and Alliance Boots together have the right, but not the obligation, to purchase a minority equity position in ABC and gain associated representation on ABC’s board of directors in certain circumstances. See “Other Agreements and Arrangements—AmerisourceBergen Arrangements and Transactions.”

During late calendar 2013 and early calendar 2014, on the basis of the successful collaboration and joint value creation with Alliance Boots to date, Walgreens management, together with Walgreens’ financial and legal advisors began to explore, on a preliminary basis, the possibility of accelerating the option exercise period to potentially complete the full combination of Alliance Boots with Walgreens sooner than originally anticipated. Walgreens’ management team and advisors discussed and evaluated a number of factors in connection with this preliminary exercise, including the potential market, strategic and financial advantages and disadvantages associated with a potential acceleration of the Step 2 Acquisition, including (i) the current and expected interest rate and currency exchange rate environments, (ii) the macroeconomic and regulatory conditions in European and other markets in which Alliance Boots operates, (iii) the ability to solidify and accelerate full strategic alignment between the Walgreens Board and senior management with Alliance Boots senior management, (iv) the current and expected business and operational performance of each of Walgreens and Alliance Boots, both on a combined and standalone basis, (v) the potential for accelerating full synergy capture across the combined business, (vi) the impact, both externally and internally at both companies, of a prolonged period of uncertainty regarding whether Walgreens would exercise the Call Option, (vii) the associated perceived “cost” to Walgreens, of exercising the Call Option on an accelerated basis, including from foregoing any remaining “option value” of the Call Option structure, the opportunity cost of cash from accelerating the payment of the cash portion of the Step 2 Acquisition consideration and additional dividend payments from accelerating the issuance of the stock portion of the Step 2 Acquisition consideration, (viii) the current and expected levels of Alliance Boots debt and associated financing requirements of Walgreens in connection with the Step 2 Acquisition, and (ix) the current expected timelines associated with ensuring that the combined company would be ready to complete the transaction based on the companies’ integration plan.

Throughout the period following the closing of the First Step Acquisition and into early calendar 2014, the Board was informed and updated by management on a periodic basis, including regarding management’s assessment as to the merits of moving forward towards a full combination pursuant to an eventual exercise of the Call Option, the progress being made with Alliance Boots and its management team in respect of ongoing synergy and integration initiatives, management’s ongoing analysis of the technical, legal and financial (including financing) requirements in connection with an eventual closing of the Step 2 Acquisition should the Board determine to exercise the Call Option, including key considerations to ensure that Walgreens would be in a position to effectively operate the combined businesses without disruption from and after closing, and the potential costs and benefits associated with potentially accelerating the option exercise period. These discussions also included consideration of the optimal corporate structure for the combined company following the Step 2 Acquisition, focused on evaluating a potential U.S. holding company structure whereby Walgreen Co. (and Alliance Boots) would become direct and/or indirect subsidiaries of a newly formed public holding company, which management believed would provide greater flexibility to the combined company in connection with future operational and financing activities.

During this period, Walgreens management also engaged in periodic discussions with representatives of Alliance Boots and the Sellers regarding the possibility of Walgreens exercising the Call Option and the potential timing thereof. These discussions focused on advancing the companies’ ongoing integration and synergy capture activities, including in part to prepare the companies for a potential full combination, and, at a preliminary level, the potential timing of Walgreens exercising the Call Option, including the possibility of working to satisfy all legal and regulatory conditions to closing in advance of the existing option exercise period in order to permit Walgreens to exercise the Call Option and close the Step 2 Acquisition early during the option exercise period.

During the remainder of the first calendar quarter of 2014 and into the second calendar quarter of 2014, representatives of Walgreens and the Sellers continued periodic discussions regarding planning for, and the possible timing of, the exercise of the Call Option and the closing of the Step 2 Acquisition. During this time,

 

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Walgreens also began a comprehensive due diligence review and evaluation of Alliance Boots and its businesses, including from operational, financial, accounting, tax, human resources, legal, regulatory, compliance, pension, commercial and market perspectives with the view to making a decision as to whether or not to exercise the Call Option (regardless of whether or not the timing thereof would be accelerated).

During the course of these discussions, and in the context of discussing the possibility of an accelerated transaction, the parties—together with their respective tax, legal and financial advisors—also explored, over the course of several months leading into and including July 2014, the possibility of structuring the Step 2 Acquisition as a so-called “inversion” transaction. Walgreens, together with Alliance Boots and their respective advisors, over the course of numerous meetings and conversations, discussed the respective parties’ assessment as to the benefits and risks associated with an inversion and whether, and under what circumstances, the Step 2 Acquisition contemplated by the Purchase and Option Agreement could be restructured as an inversion in technical and legal compliance with current U.S. federal tax law. From a technical viability perspective, as an initial matter, the parties agreed that the Step 2 Acquisition as contemplated by the Purchase and Option Agreement would not permit an inversion. Accordingly, during this period, the parties and their respective advisors discussed and explored whether and on what terms various alternative transaction structures would provide the requisite and customary level of confidence for transactions of this nature of withstanding IRS review and scrutiny. During this time, Walgreens and its advisors also closely studied many other considerations with respect to a potential inversion transaction, including the potential financial benefits (and their sustainability) of an inversion to Walgreens and its shareholders, the ongoing public reaction and debate surrounding inversion transactions and Walgreens’ unique role as an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs.

On May 28, 2014, the Walgreens Board met to consider and discuss the Step 2 Acquisition and Walgreens’ potential exercise of the Call Option. Present at the meeting were Mr. Wasson, Mr. Miquelon, Mr. Sabatino and other members of Walgreens management, as well as representatives of Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”), legal advisor to Walgreens in connection with the Step 2 Acquisition, Goldman Sachs financial advisor to Walgreens in connection with the Step 2 Acquisition, and other legal, public relations and tax advisors to Walgreens. At the meeting, Walgreens management provided the Board with an update regarding the ongoing work in connection with evaluating and preparing for the potential Step 2 Acquisition, including the due diligence and integration workstreams and the evaluation of the potential benefits and costs of accelerating the transaction, in this regard discussing the potential benefits, including the acceleration of synergy capture, the ability to respond more quickly to industry developments, potentially reduced interest rate and foreign exchange risks related to the required financing, and increased employee morale from removing uncertainty, as well as the potential costs, including the opportunity cost of cash from accelerating the payment of the cash portion of the Step 2 Acquisition consideration, additional dividend payments from accelerating the issuance of the stock portion of the Step 2 Acquisition consideration, and the loss of “option value” once the Call Option is exercised.

Walgreens management then turned to a discussion of the potential structures for the combined company assuming Walgreens were to proceed with the acquisition of the remaining 55% of Alliance Boots that it did not own. Walgreens management and the Walgreens Board considered and discussed three such potential structures: exercising the Call Option on its existing terms without the creation of any new holding company above the level of Walgreens; exercising the Call Option on its existing terms, but, in connection therewith, also reorganizing Walgreens into a U.S. holding company structure, which management discussed would be expected to provide greater flexibility to the combined company in connection with future operational and financing activities; and the possibility of an inversion transaction which would involve organizing the combined Walgreens and Alliance Boots group under a holding company organized in a non-U.S. jurisdiction. In connection with the Walgreens Board’s review of the possibility of an inversion transaction, Walgreens management provided an overview of the work and analysis being conducted by Walgreens management and advisors with respect to a potential inversion, including analyses relating to (1) legal and technical viability, (2) the potential economic and business benefits (including sustainability) and risks, (3) potential public and consumer response, (4) potential political or legislative response and (5) the risks associated with a potential IRS challenge.

 

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Following a lengthy discussion, Walgreens management continued by describing for the Board the current progress and ongoing processes in respect of due diligence (including Walgreens’ focus on Alliance Boots’ current and expected market performance relative to initial expectations, as well as changes to market and regulatory conditions, particularly those that impact profit margins, and the realization of synergies), integration planning and transaction execution planning in preparation for a potential exercise of the Call Option. At the meeting, the Walgreens Board expressed its desire to continue to advance the workstreams in connection with evaluating and preparing for the potential exercise of the Call Option, including further exploring the optimal timing and structure in connection with the potential transaction.

Over the next several weeks, representatives of Walgreens and Alliance Boots continued their joint work on integration and transition planning. During this time, as described above, representatives of Walgreens and Alliance Boots, together with their respective advisors, also continued to explore and evaluate the technical viability of a restructured transaction structured as an inversion. During the course of these discussions, Walgreens management continued to apprise Board members regarding the progress of these discussions.

On June 24, 2014, Walgreens management hosted a conference call to present its financial results for the third quarter of fiscal 2014. In the course of that presentation, and in an accompanying press release, Walgreens management announced that the Board was moving forward toward consideration of the second step in the Walgreens-Alliance Boots strategic transaction, including determination of timing and structure, combined management teams, cost reduction initiatives and potential changes in the Walgreens’ future capital structure. At the same time, Walgreens announced that, as a result of the many considerations linked to the Step 2 Acquisition and current business performance, it was withdrawing its fiscal year 2016 goals that were previously announced in 2012. Walgreens announced that it expected to provide a new set of goals and metrics for the proposed combined company during an investor call expected to occur by late July or early August 2014.

In light of the potentially significant business, financial, legal and competitive implications of an inversion, and the inherently difficult and complex nature of the questions being addressed, and with the agreement of Alliance Boots and the Sellers, on June 30, 2014, the Board established an ad-hoc transaction committee of the Board (the “Transaction Committee”), comprised solely of independent directors, with a mandate to independently evaluate potential alternative transaction structures and conduct an in-depth review of the opportunities, risks and complexities associated with an inversion, all with the assistance of separate, independent tax counsel. The Transaction Committee was comprised of directors William C. Foote, who chaired the committee, Nancy M. Schlichting and David J. Brailer, MD, and the Transaction Committee retained Lowell D. Yoder, head of the U.S. and International Tax Practice Group of McDermott Will & Emery LLP, as its independent tax counsel. Each of the members of the Transaction Committee was previously determined by the Walgreens Board to qualify as an independent director under the independence standards of the NYSE and NASDAQ, including that none was a member of management of Walgreens or a representative of, or affiliated with, Alliance Boots.

On July 8, 2014, the members of the Transaction Committee met briefly with Messrs. Wasson and Pessina to discuss the committee’s anticipated process and expected timeline for delivering any conclusions or recommendations to the full Walgreens Board.

At a July 9, 2014 meeting of the Walgreens Board, the Board again considered and discussed the Step 2 Acquisition and Walgreens’ potential exercise of the Call Option. Present at the meeting were Messrs. Wasson, Miquelon and Sabatino, as well other members of Walgreens management. During an executive session of the meeting, during which Messrs. Pessina and Murphy, as Board designees of the SP Investors and the KKR Investors, respectively, were excused, Walgreens management informed the Board as to the results of Walgreens’ due diligence process. Walgreens management discussed that, consistent with the two-step transaction envisioned by the Purchase and Option Agreement, Walgreens had used the period since the closing of the First Step Acquisition to confirm the financial and strategic rationale supporting the transaction with Alliance Boots, and recalled for the Board that Walgreens entered into the transaction based upon the expected

 

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benefits to Walgreens’ core business through complementary capabilities and the diversification of Walgreens’ profit pools from both a geographic and business model perspective, and, financially, based upon the expectation that the transaction would create value through purchasing and other synergies and by adding strong businesses and brands to a strengthened combined company. Walgreens management reported their conclusion that Walgreens’ experience to date had validated the strategic foundation for the transaction, as evidenced by, among other things, the success of the WBAD joint venture. Walgreens management then described for the Board the results of the comprehensive due diligence process on each of Alliance Boots’ core businesses, including both the retail health and beauty business and the wholesale business, as well as with respect to legal, regulatory, compliance, human resources, pension and tax matters. A lengthy discussion ensued, including various questions and discussion from and among the Board members and management representatives regarding Alliance Boots’ current and expected market performance relative to initial expectations, as well as changes to market and regulatory conditions, and their potential impact on profit margins and synergies.

Walgreens management then provided the Board with an update regarding the progress made and ongoing workstreams related to the optimal timing of, and potential structure to be used in connection with, the Step 2 Acquisition should the Board determine to exercise the Call Option. Walgreens management discussed that Walgreens had publicly disclosed its expectation that it would provide an update regarding the Step 2 Acquisition timing and structure either in late July or early August 2014. Walgreens management then described for the Board its recommendation that the benefits of completing the transaction as quickly as possible, including (1) removing remaining barriers to progress by enabling both companies to focus on moving forward to aggressively drive business performance and capture additional opportunities, (2) allowing for synergy pull-forward and strategic flexibility to respond more quickly to industry developments, (3) removing uncertainty in the investor and analyst community, (4) providing clarity to employees by alleviating growing anxiety about their roles in the combined company and (5) potentially reducing interest rate and foreign exchange rate risk, outweighed the potential risks, which management viewed as manageable, including accelerating the contemplated timetable for integration planning. Walgreens management and the Board also discussed that accelerating the option exercise period in order to exercise the Call Option on the current Purchase and Option Agreement terms would require an amendment agreed to by the Sellers and it was not yet certain whether the Sellers would agree to such an amendment.

Following further discussion, Walgreens management continued by describing for the Board the current status of the workstreams and discussions with respect to the optimal transaction structure for purposes of combining Walgreens and Alliance Boots. Walgreens management reconfirmed its recommendation that, under the current Purchase and Option Agreement, the optimal structure would involve the creation of a U.S. holding company, but that, as discussed at previous meetings of the Board, extensive work and analysis was continuing with respect to the feasibility and advisability of a potential inversion through a restructured transaction that would both provide the requisite and customary level of confidence of withstanding IRS review and scrutiny and otherwise be in the best interests of Walgreens and its shareholders in light of all relevant factors and considerations. Following extensive discussion regarding the ongoing analyses with respect to a potential inversion, including the formation of the Transaction Committee, management further provided the Board with an update regarding the progress and planning around the integration workstream in anticipation of a potential full combination, and discussed with the Board management’s views and planning around the combined company capital structure and financing arrangements and plans in connection with the Step 2 Acquisition and refinancing of Alliance Boots’ existing long-term debt.

Following further discussion, the Board and management concluded that management should continue to aggressively advance all workstreams in preparation for the potential exercise of the Call Option, including transaction timing and structure, integration planning and capital structure.

After the July 9 board meeting, on that same day a meeting of the Transaction Committee was held at which Marco Pagni, Group Legal Counsel of Alliance Boots, George Fairweather, Group Finance Director of Alliance Boots, along with Mr. Pessina and representatives of Darrois Villey Maillot Brochier (“Darrois”), legal counsel

 

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for Alliance Boots, Simpson Thacher & Bartlett LLP (“Simpson Thacher”), legal counsel for KKR, Debevoise & Plimpton LLP, Deloitte Tax LLP and KPMG LLP, tax advisors to Alliance Boots, and Deutsche Bank, financial advisor to Alliance Boots, as well as Mr. Yoder, were also present. Jan Stern Reed, then Corporate Vice President and Deputy General Counsel of Walgreens, and Mr. Sabatino also attended the meeting. During the meeting, Alliance Boots management and the advisors to Alliance Boots and KKR presented to and discussed with the Transaction Committee and Mr. Yoder their views regarding a potential inversion structure, the technical viability of such a structure, the potential benefits and risks associated with an inversion, and the requisite level of comfort needed to pursue an inversion in light of the possibility of IRS review and scrutiny.

Following July 9, Walgreens management, assisted by its external financial and legal advisors, continued to advance discussions with representatives of the Sellers with respect to both a potential acceleration of the option exercise period and the optimal corporate structure for the combined company. On July 10, 2014, Messrs. Wasson, Sabatino and Miquelon and Mark Vainisi, Group Vice President, Mergers and Acquisitions, of Walgreens, met with Messrs. Pessina, Pagni and Fairweather of Alliance Boots to discuss the timing of the potential Step 2 Acquisition and structural considerations with respect to the transaction, including the possibility of an inversion transaction and, if an inversion were pursued, the extent to which the transactions contemplated by the Purchase and Option Agreement would need to be modified to provide the requisite level of confidence of withstanding IRS review.

On July 14, 2014, a meeting of the Transaction Committee was held at which Messrs. Wasson, Miquelon, Sabatino and Vainisi, Ms. Reed, John Mann, Divisional Vice President, Tax, of Walgreens and other members of Walgreens management, representatives of Wachtell Lipton, representatives of Baker & McKenzie LLP, PricewaterhouseCoopers LLP and Ernst & Young LLP, tax advisors to Walgreens, and Goldman Sachs, financial advisor to Walgreens, as well as Mr. Yoder, were present. Mr. Pagni of Alliance Boots also attended the meeting. During the meeting, Walgreens management and Walgreens’ advisors presented to and discussed with the Transaction Committee and Mr. Yoder their views regarding a potential inversion structure, the technical viability of such a structure, the potential benefits and risks associated with an inversion, and the requisite level of confidence of such an inversion withstanding potential IRS review and scrutiny. On July 16, 2014, the Transaction Committee again met with Mr. Yoder to review and synthesize the Transaction Committee’s discussions to date regarding a potential inversion, including the content of the discussions during the July 9 and July 14 committee meetings.

On July 21, 2014, a telephonic Walgreens Board meeting was held. Present at the meeting were Messrs. Wasson, Miquelon and Sabatino and Ms. Reed, as well as Mr. Yoder and representatives of Wachtell Lipton. At the meeting, the Transaction Committee presented its conclusion and recommendation to the full Walgreens Board that a high level of comfort and confidence in withstanding IRS review and scrutiny should be required for a company in Walgreens’ position to pursue an inversion, and that, to achieve such a level of comfort and confidence, significant and material modifications to the terms of the existing Purchase and Option Agreement and the transactions contemplated thereby would be required.

Also on July 21, 2014, Messrs. Wasson, Miquelon, Vainisi, Pessina, Murphy and Pagni met via video conference. During the meeting, the representatives of Walgreens and the Sellers further discussed the potential acceleration of the timing of the exercise of the Call Option and Step 2 Acquisition and whether sufficient modifications to the Step 2 Acquisition and Purchase and Option Agreement in the context of potentially structuring the Step 2 Acquisition as an inversion transaction would be achievable. Following this and the prior discussions described above between Walgreens management and representatives of the Sellers, Walgreens management concluded that, despite good faith efforts by all sides, the parties would not be able to arrive at an inversion structure that provided Walgreens with the requisite level of confidence of withstanding potentially extensive IRS review and scrutiny.

On July 28, 2014, following conversations between representatives of Walgreens and the Sellers, Wachtell Lipton delivered an initial draft of an amendment to the Purchase and Option Agreement to Darrois and Simpson

 

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Thacher, providing for an acceleration of the option exercise period to August 2014 and contemplating a simultaneous exercise of the Call Option on otherwise the same terms as the existing Purchase and Option Agreement in all material respects. Over the course of the next several days, representatives of Wachtell Lipton, Darrois and Simpson Thacher exchanged several drafts of, and engaged in several conversations regarding certain technical aspects of, the proposed amendment.

On July 30, 2014, the Walgreens Board again met to discuss the timing, structure and other aspects of the potential Step 2 Acquisition. Present at the meeting were Messrs. Wasson, Miquelon and Sabatino, and other members of the Walgreens management team, as well as representatives of Wachtell Lipton, Goldman Sachs and Lazard, also engaged as financial advisor to Walgreens. During the meeting, management and the Board discussed the conclusions and recommendation of the Transaction Committee and that, despite significant and good faith efforts on all sides, involving various specific revised transaction structures and terms, the parties were unable to reach consensus with respect to an inversion structure that provided Walgreens with the requisite level of confidence of withstanding potentially extensive IRS review and scrutiny. Accordingly, management reviewed for the Board its continued recommendation that the optimal structure under the Purchase and Option Agreement involved a newly formed U.S. holding company. Management also discussed with the Board the transaction process to date, including the due diligence process and results, the extensive analysis regarding the benefits and risks associated with an acceleration of the option exercise period, and the continued expected compelling value to Walgreens and its shareholders from completing the Step 2 Acquisition, including the strategic and financial rationale supporting a full combination, and the ability to build on value already recognized and to benefit from complementary capabilities, business model and profit pool diversification, and procurement and other synergy potential. Walgreens management also described for the Board the current negotiations with Alliance Boots regarding the proposed amendment to the Purchase and Option Agreement to provide for an accelerated exercise of the Call Option but otherwise on the existing terms of the Purchase and Option Agreement.

Walgreens management then described for the Board the planning around the combined company capital structure and financing arrangements and plans in connection with the Step 2 Acquisition and refinancing of Alliance Boots’ existing long-term debt, and provided an overview of the investor relations and communications planning prepared by management and Walgreens’ advisors should the Board determine to announce an accelerated exercise of the Call Option. Extended discussion ensued, including as to the tentative plans, subject to Board approval and agreement with the Sellers on an amendment to the Purchase and Option Agreement, to announce on an August 6 analyst conference call the exercise of the Call Option to complete the Step 2 Acquisition. Representatives of Wachtell Lipton then provided the Walgreens directors with an overview of their fiduciary duties in connection with the Step 2 Acquisition and Call Option, and representatives of Goldman Sachs and Lazard separately reviewed certain financial aspects of the Step 2 Acquisition and Call Option and discussed with the directors the respective financial analyses they would expect to be in a position to provide to the Board should the Board determine to exercise the Call Option in connection with the August 6 analyst conference call.

During the course of the following week, representatives of Wachtell Lipton, Darrois and Simpson Thacher continued to exchange drafts and discuss various technical and other terms of the proposed amendment to the Purchase and Option Agreement.

On August 5, 2014, the Board met, with Messrs. Wasson and Sabatino and other members of the Walgreens management team, as well as representatives of Wachtell Lipton, Goldman Sachs and Lazard, in attendance. At the meeting, management reported to the Board that negotiations with the Sellers regarding the amendment had been completed, permitting the early exercise of the Call Option. Management also provided the directors with an overview of the contemplated (subject to Board approval) August 6 announcement of the exercise of the Call Option, and discussed that the Step 2 Acquisition would be expected to be completed in the first calendar quarter of 2015. Members of the management team also provided the Board with a further overview of the transaction process to date, as well as the reports and recommendations discussed at prior meetings of the Board regarding

 

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the decision to exercise the Call Option, the costs and benefits of acceleration, the optimal transaction structure, and the expected capital structure and financing arrangements and plans.

At this meeting, representatives of Goldman Sachs reviewed with the Board Goldman Sachs’ financial analysis of the Call Option and Step 2 Acquisition, and delivered to the Board an oral opinion, which was confirmed by delivery of a written opinion, dated August 5, 2014, addressed to the Board to the effect that, as of the date of the opinion and based upon and subject to the conditions and limitations set forth therein, the consideration to be paid by an indirect wholly owned subsidiary of Walgreens to acquire the Second Step Company Shares pursuant to the Purchase and Option Agreement was fair from a financial point of view to Walgreens. Also at this meeting, representatives of Lazard reviewed with the Board Lazard’s financial analysis of the Call Option and Step 2 Acquisition, and delivered its oral opinion to the Board, subsequently confirmed in writing, that, as of August 5, 2014, based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth in the opinion, the consideration to be paid by Walgreens to exercise the Call Option was fair, from a financial point of view, to Walgreens. Representatives of Wachtell Lipton provided the directors with an overview of their fiduciary duties in connection with the determination as to whether to exercise the Call Option.

At the conclusion of the meeting, the Walgreens Board (excluding Messrs. Pessina and Murphy) unanimously approved the amendment to the Purchase and Option Agreement and the exercise of the Call Option and recommended that the Walgreens shareholders approve the Share Issuance and Reorganization.

Following the meeting, on August 5, 2014, the parties executed the amendment to the Purchase and Option Agreement, pursuant to which Walgreens exercised the Call Option. The exercise of the Call Option was announced on the morning of August 6, 2014 in a press release and related investor presentation issued by Walgreens.

Recommendation of the Board; Reasons for the Recommendation to Walgreens Shareholders by the Board

Recommendation of the Board

The Board has approved the Reorganization Merger Agreement and recommends that you vote “FOR” the Reorganization Proposal; “FOR” the Share Issuance Proposal; and “FOR” the Adjournment Proposal. For a discussion of interests of Walgreens’ directors and executive officers in the Transactions that may be different from, or in addition to, the interests of Walgreens shareholders generally, see the section entitled “—Walgreens’ Directors and Executive Officers May Have Financial Interests in the Transactions” beginning on page [    ].

Reasons for the Recommendation to Walgreens Shareholders by the Board

After careful consideration, the Board determined that it is in the best interests of Walgreens and its shareholders to exercise the Call Option, and on August 5, 2014, pursuant to the Amendment, the Call Option became exercisable by Walgreens and Walgreens, through an indirect wholly owned subsidiary, exercised the Call Option. In addition, the Board has determined that it is in the best interests of Walgreens and its shareholders to, immediately prior to the completion of the Step 2 Acquisition, complete the Reorganization. In reaching its determination to exercise the Call Option, complete the Reorganization, call the Special Meeting and recommend to Walgreens shareholders that they vote “FOR” the Reorganization Proposal and vote “FOR” the Share Issuance Proposal, the Board consulted with its financial and legal advisors and considered a variety of factors, including the material factors set forth below. In light of the number and wide variety of factors considered in connection with its evaluation of the Transactions, the Board did not consider it practical to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors that it considered in reaching its determination. The Board viewed its position as being based on all of the information available and the factors presented to and considered by

 

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it. In addition, individual members of the Board may have given different weight to different factors. This explanation of the Board’s reasons for recommending the proposed Transactions and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements.”

 

    The Board believes that the completion of the Step 2 Acquisition may provide a number of significant strategic opportunities that will enhance the overall offerings and growth of the combined company and long-term shareholder value, including that:

 

    the full integration of the strengths and expertise of two great companies with iconic brands, complementary geographic footprints, shared values and a heritage of trusted healthcare services, through pharmaceutical wholesaling and community pharmacy care, dating back over 100 years;

 

    Walgreens and Alliance Boots are the largest retail pharmacy, health and daily living destinations in the U.S. and Europe, respectively, and the fully combined company would be:

 

    the global leader in pharmacy-led, health and wellbeing retail with over 12,800 stores in 12 countries;

 

    the largest global pharmaceutical wholesale and distribution network with over 380 distribution centers delivering to more than 180,000 pharmacies, doctors, health centers and hospitals in 20 countries; and

 

    the world’s largest purchaser of prescription drugs and many other health and wellbeing products;

 

    the combined size, scale and expertise of Walgreens and Alliance Boots will help the combined company expand the supply of, and address the rising cost of, prescription drugs in the U.S. and worldwide;

 

    on a fully combined basis, Walgreens and Alliance Boots would have:

 

    unmatched supply chain and procurement expertise, offering customers innovative solutions and optimal efficiencies;

 

    an unparalleled portfolio of retail and business brands (Walgreens, Duane Reade, Boots and Alliance Healthcare), as well as increasingly global health and beauty product brands (No7, Botanics and Boots Laboratories);

 

    diversified and robust profit pools across the U.S., Europe and key emerging markets; and

 

    an unique platform for growth in developed and emerging markets;

 

    by leveraging the above advantages and opportunities, as well as the full benefit of the best practices and expertise of both companies, the combined company could, over time, create substantial incremental efficiency, synergy and growth opportunities; and

 

    the full acquisition of Alliance Boots would provide an opportunity to further accelerate the creation of a fully integrated, worldwide platform for the future to provide innovative ways to address global health and wellness challenges, and position the combined company to expand customer offerings in existing markets and become the health and wellbeing partner of choice in emerging markets.

 

    The Board reviewed and considered the history of successful collaboration and joint value creation with Alliance Boots to date, including initiatives intended to help realize potential synergies across both companies, such as the creation of Walgreens Boots Alliance Development GmbH, a 50/50 global sourcing joint venture, in 2012, and the strategic transactions jointly entered into with ABC in 2013. See “Other Agreements and Arrangements.” The Board believes that the experiences and achievements with regard to WBAD thus far have exceeded expectations and have enhanced confidence in the value creation potential of the combined business.

 

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    The Board considered the financial condition of Walgreens’ and Alliance Boots’ respective balance sheets and the cash flows historically generated by both Walgreens and Alliance Boots, and its belief that these factors will enable the consummation of the Step 2 Acquisition, including the payment of the cash consideration portion of the purchase price, while maintaining a strong financial foundation and combined balance sheet.

 

    The Board considered that, although Walgreens currently intends to complete the Step 2 Acquisition as promptly as possible following the satisfaction of the conditions to closing, pursuant to the Amendment, Walgreens is not required to consummate the closing of the Step 2 Acquisition prior to March 9, 2015, which provides Walgreens with additional flexibility and allows it, if appropriate, to coordinate the closing of the Step 2 Acquisition with other strategic, business, integration, transition or financing initiatives or transactions.

 

    The Board considered the terms of the Purchase and Option Agreement, including the Board’s belief that the terms of the Purchase and Option Agreement are fair and reasonable and, taken as a whole, provide a significant degree of certainty regarding the completion of the Step 2 Acquisition.

 

    The Board considered the governance and related provisions set forth in the Shareholders Agreement, and its belief that these provisions provide for governance rights and arrangements, transfer restrictions, voting commitments and standstill protections following the consummation of the Step 2 Acquisition that would govern the SP Investors’ and KKR Investors’ increased ownership percentage in the combined company in a reasonable and balanced manner, including:

 

    that the SP Investors and the KKR Investors have agreed to, for so long as the SP Investors have the right to designate the SP Investor Designee (or Mr. Pessina continues to serve as Executive Chairperson or Chief Executive Officer of Alliance Boots or is otherwise in an operational or management role at Alliance Boots or Walgreens) and for so long as the KKR Investors have the right to designate the KKR Investor Designee, respectively, vote all of their shares of common stock in accordance with the Board’s recommendation on matters submitted to a vote of Walgreens’ shareholders;

 

    a lock-up provision that restricts the SP Investors’ and KKR Investors’ ability to transfer the shares of Walgreens Boots Alliance (or Walgreens, as the case may be) common stock received on completion of the Step 2 Acquisition for certain periods (subject to certain exceptions for permitted transfers) and certain other transfer restrictions;

 

    certain standstill provisions that, among other things, and subject to certain exceptions, prohibit Mr. Pessina, KKR and their respective affiliates from acquiring additional shares of Walgreens (or Walgreens Boots Alliance, as applicable) common stock above specified limits; and

 

    certain restrictions on the ability of Mr. Pessina and his affiliates from competing with Walgreens (or Walgreens Boots Alliance, as applicable) (see “—Walgreens Directors and Executive Officers May Have Financial Interests in the Transactions” and “Walgreens Shareholder Agreement”).

 

    The Board considered its familiarity with the current and historical financial condition, results of operation, competitive position, business, prospects and strategic objectives of Walgreens, including potential risks involved in achieving such objectives on a standalone basis (with a minority interest in Alliance Boots) and as part of the combined company following a full, 100% acquisition of Alliance Boots. The Board also considered its and management’s familiarity with the industries in which Walgreens and Alliance Boots operate (including after taking into account the Board’s and management’s enhanced familiarity since entering into the Purchase and Option Agreement and completing the First Step Acquisition in 2012) and the prospects for such industries, including ongoing industry developments and the impact of industry consolidation and strategic transactions (such as McKesson Corp.’s acquisition of Celesio and the joint venture between CVS Caremark and Cardinal Health).

 

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    The Board reviewed and considered Alliance Boots’ recent market performance, including relative to Walgreens’ initial assumptions, as well as recent and potential changes to market and regulatory conditions, particularly those that might impact profit margins and realization of synergies.

 

    The Board considered the fact that Goldman Sachs rendered an opinion, dated August 5, 2014, addressed to the Board as to the fairness from a financial point of view to Walgreens of the consideration to be paid by an indirect wholly owned subsidiary of Walgreens to acquire the Second Step Company Shares pursuant to the Purchase and Option Agreement, as more fully described below under “—Opinion of Goldman, Sachs & Co., Walgreens’ Financial Advisor.”

 

    The Board considered the fact Lazard rendered an opinion, dated August 5, 2014, addressed to the Board as to the fairness, from a financial point of view, to Walgreens of the consideration to be paid to exercise the Call Option, as more fully described below under “—Opinion of Lazard Frères & Co., Walgreens’ Financial Advisor.”

 

    Specifically, with respect to the Reorganization (the completion of which is conditioned on the completion of the Step 2 Acquisition as further described in this proxy statement/prospectus), the Board additionally considered the following factors:

 

    the predictability, flexibility and responsiveness of Delaware law to corporate needs, including Delaware’s comprehensive and modern corporate laws, Delaware’s development of considerable expertise in dealing with corporate issues relating to public companies and a substantial body of case law construing Delaware corporate law and establishing legal principles and policies regarding publicly-held Delaware corporations;

 

    the Board’s belief that a holding company structure could facilitate further expansion of our businesses by providing a more flexible structure for acquiring other businesses or entering into joint ventures, as well as potentially permitting the use of financing techniques that are more readily available to companies that hold a variety of businesses under one corporate umbrella; and

 

    the Board’s belief that a holding company structure could facilitate the future reorganization and streamlining of our holding structure for existing businesses, in particular the manner in which the Alliance Boots businesses are held following the completion of the Step 2 Acquisition, to improve the efficient and transparent management and reporting of these businesses.

In connection with its determination to exercise the Call Option, given the potentially significant business, financial, legal and competitive implications of the Transactions, the Board thoroughly evaluated the possibility of combining Walgreens and Alliance Boots under a foreign parent company in an “inversion” transaction. The Board determined that the existing transaction contemplated by the Purchase and Option Agreement would not qualify for an inversion under the current U.S. federal income tax rules. Walgreens management and the Board, including an ad hoc committee of independent directors, and with the benefit of advice from leading tax and policy advisors, undertook an extensive analysis to explore the feasibility of a restructured inversion transaction that would provide Walgreens with the customary level of confidence that the revised transaction structure would withstand IRS review and scrutiny. It was concluded that it was not in the best long-term interest of Walgreens and its shareholders to attempt to re-domicile Walgreens outside of the U.S.

In reaching the determinations and recommendations described above, the Board also considered the following risks and potentially negative factors:

 

    the risk that the potential benefits of the Transactions (including the potential strategic benefits, efficiencies and synergies) may not be fully achieved;

 

    the risk and costs to Walgreens if the Transactions are not completed, including the potential diversion of management and employees, potential attrition and potential effects on our business and business relationships;

 

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    the risk of diverting management focus and resources from other strategic opportunities and from operational matters;

 

    the ownership dilution to Walgreens’ current shareholders resulting from the Share Issuance;

 

    the potential negative consequences from increased debt levels and related debt service obligations;

 

    the potential challenges and difficulties with integrating the operations of Alliance Boots;

 

    the potential challenges and difficulties associated with significantly increasing Walgreens’ and Walgreens shareholders’ exposure to the risks of operating internationally;

 

    the substantial transaction costs to be incurred in connection with the Transactions;

 

    the fact that members of the Board (including Messrs. Pessina and Murphy) and Walgreens’ management may have interests in the Transactions that are different from, or in addition to, Walgreens’ shareholders generally (see “—Walgreens Directors and Executive Officers May Have Financial Interests in the Transactions”);

 

    the increased ownership interest in the combined company of the SP Investors and the KKR Investors following the completion of the Step 2 Acquisition, and certain related rights under the Shareholders Agreement, including:

 

    that, for so long as the SP Investors and the KKR Investors continue to meet certain beneficial ownership thresholds and subject to certain other conditions, the SP Investors and the KKR Investors, respectively, will each be entitled to designate one nominee to the Board for inclusion in Walgreens’ slate of directors; and

 

    that, after the expiration of the lock-up restrictions, the SP Investors and KKR Investors are permitted to transfer their shares, subject to certain volume limitations and certain other restrictions, and are entitled to certain demand, “piggyback” and shelf registration rights with respect to the their shares of common stock (see “—Walgreens Directors and Executive Officers May Have Financial Interests in the Transactions” and “Walgreens Shareholder Agreement”);

 

    the limited ability of Walgreens to terminate the Purchase and Option Agreement and related transactions based on changed circumstances affecting either Walgreens or Alliance Boots;

 

    the fact that the Purchase and Option Agreement provides for Step 2 Acquisition consideration comprised of a fixed number of Walgreens shares, which have recently traded at significantly higher prices than Walgreens shares were trading at the time the Purchase and Option Agreement was entered into, and a fixed amount of cash, payable in British pounds sterling, which due to exchange rate movements since the entry into the Purchase and Option Agreement, currently represents a higher amount of U.S. dollars;

 

    the results of Walgreens’ due diligence investigation, including that such results indicated ongoing challenging environments for each of Alliance Boots, Walgreens and the industries, generally, in which they operate;

 

    the fact that Walgreens’ obligation to complete the Step 2 Acquisition is not subject to the receipt of financing, and the risks of being unable to find the financing sources necessary to fund the Step 2 Acquisition cash consideration and/or the refinancing of substantially all of Alliance Boots’ total borrowings on acceptable terms, or at all;

 

    the fact that, if the Step 2 Acquisition is completed, Walgreens is likely to incur significant additional debt in connection with the financing thereof and the assumption and/or refinancing of substantially all of Alliance Boots’ total borrowings;

 

   

the relationships between Goldman Sachs and/or Lazard, on the one hand, and Walgreens, Alliance Boots, the Sellers, the SP Investors and/or the KKR Investors, and each of their respective affiliates, on

 

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the other hand, and the fact that Goldman Sachs and Lazard each disclosed to the Board information regarding certain of such relationships;

 

    the fact that, under the Purchase and Option Agreement and related agreements, subject to specified exceptions, if the closing of the Step 2 Acquisition does not occur: (i) AB Acquisitions may require Walgreens to return to AB Acquisitions 1/15th of the Alliance Boots shares acquired by Walgreens in the First Step Acquisition, in exchange for nominal consideration of one British pound sterling, (ii) Walgreens will continue to own a significant minority interest in Alliance Boots (45%, or 42% if the return of 1/15th of the Alliance Boots shares acquired by Walgreens in the First Step Acquisition is required), but certain of Walgreens’ governance rights as a shareholder of Alliance Boots will be modified, (iii) certain other rights and obligations may be triggered under Walgreens’ transaction documents and related agreements with Alliance Boots, including with respect to the ABC relationship entered into in 2014, and (iv) Walgreens currently engages in various commercial transactions and arrangements with Alliance Boots, including through WBAD, and the status and prospects of, and future willingness of either Walgreens and/or Alliance Boots to continue to engage in, these transactions and arrangements would be uncertain (see “The Purchase and Option Agreement,” “Alliance Boots Shareholders Agreement” and “Other Agreements and Arrangements”); and

 

    the risk that regulatory authorities may seek to impose conditions or otherwise prevent or delay the Transactions or impose restrictions or requirements on the operation of the business of the combined company after the closing of the Step 2 Acquisition.

The Board also considered a variety of other risks and other countervailing factors, including the risks of the type and nature described under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

Opinion of Goldman, Sachs & Co., Walgreens’ Financial Advisor

Goldman Sachs rendered its opinion to the Board that, as of August 5, 2014 and based upon and subject to the factors and assumptions set forth therein, the £3,133,000,000 in cash and 144,333,468 common shares, par value $0.078125 per share (“Walgreens Shares”), of Walgreens (collectively, the “Consideration”) to be paid by Walgreen Scotland Investments LP, an indirect wholly owned subsidiary of Walgreens (“Walgreen Scotland”), to acquire the Second Step Company Shares pursuant to the Purchase and Option Agreement was fair from a financial point of view to Walgreens.

The full text of the written opinion of Goldman Sachs, dated August 5, 2014, which sets forth assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in connection with the opinion, is attached as Annex H. Goldman Sachs provided its opinion for the information and assistance of the Board in connection with its consideration of the acquisition of the Second Step Company Shares. The Goldman Sachs opinion is not a recommendation as to how any holder of Walgreens Shares should vote with respect to the issuance of the Second Step Buyer Shares or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

    the Purchase and Option Agreement;

 

    annual reports to shareholders and Annual Reports on Form 10-K of Walgreens for the five fiscal years ended August 31, 2013;

 

    audited historical financial statements for Alliance Boots for the five fiscal years ended March 31, 2014;

 

    certain interim reports to shareholders and Quarterly Reports on Form 10-Q of Walgreens;

 

    certain communications from Walgreens and Alliance Boots to their respective shareholders;

 

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    certain publicly available research analyst reports for Walgreens;

 

    certain internal financial analyses and forecasts for Alliance Boots prepared by its management;

 

    certain internal financial analyses and forecasts for Walgreens and certain financial analyses and forecasts for Alliance Boots, in each case, as prepared by the management of Walgreens and approved for Goldman Sachs’ use by Walgreens (“Forecasts”), and certain operating synergies projected by the management of Walgreens to result from the consummation of the acquisition of the Second Step Company Shares, as approved for Goldman Sachs’ use by Walgreens (“Synergies”).

Goldman Sachs has held discussions with members of the senior managements of Walgreens and Alliance Boots regarding their assessment of the past and current business operations, financial condition and future prospects of Alliance Boots and with the members of senior management of Walgreens regarding their assessment of the past and current business operations, financial condition and future prospects of Walgreens and the strategic rationale for, and the potential benefits of, the acquisition of the Second Step Company Shares; reviewed the reported price and trading activity for Walgreens Shares; compared certain financial and stock market information for Walgreens and certain financial information for Alliance Boots with similar financial and stock market information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the pharmaceutical retail and wholesale industries and in other industries; and performed such other studies and analyses, and considered such other factors, as Goldman Sachs deemed appropriate.

For purposes of rendering its opinion, Goldman Sachs, with Walgreens’ consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with Walgreens’ consent that the Forecasts and the Synergies have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Walgreens. Goldman Sachs has not made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Walgreens or Alliance Boots or any of their respective subsidiaries and it has not been furnished with any such evaluation or appraisal. Goldman Sachs has assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the acquisition of the Second Step Company Shares will be obtained without any adverse effect on Walgreens or Alliance Boots or on the expected benefits of the acquisition of the Second Step Company Shares in any way meaningful to its analysis. Goldman Sachs also has assumed that (i) the acquisition of the Second Step Company Shares will be consummated on the terms set forth in the Purchase and Option Agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis, (ii) the Russia Option (as defined in the Purchase and Option Agreement) will not be exercised, (iii) the Make-Whole Amount (as defined in the Purchase and Option Agreement) will not be paid, and (iv) no Cash-Option Event (as defined in the Purchase and Option Agreement) will occur.

Goldman Sachs’ opinion does not address the underlying business decision of Walgreens to engage in the acquisition of the Second Step Company Shares, or the relative merits of the acquisition of the Second Step Company Shares as compared to any strategic alternatives that may be available to Walgreens; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to Walgreens, as of the date of the opinion, of the Consideration to be paid by Walgreen Scotland to acquire the Second Step Company Shares pursuant to the Purchase and Option Agreement. Goldman Sachs does not express any view on, and its opinion does not address, any allocation of the Consideration, any ongoing obligations of Walgreens, any provisions for indemnification, purchase price adjustments, the Russia Option, the Make-Whole Amount, the Cash Option (as defined in the Purchase and Option Agreement), the Clawback Option (as defined in the Purchase and Option Agreement), the Guarantee Option (as defined in the Purchase and Option Agreement) or any other term or aspect of the Purchase and Option Agreement or the transactions contemplated by the Purchase and Option Agreement (the “Transaction”) or any term or aspect of any shareholders agreement, joint venture agreement, other ancillary agreement or any

 

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other agreement or instrument contemplated by the Purchase and Option Agreement or entered into or amended in connection with the Transaction, including the fairness of the Transaction to, or any consideration received in connection therewith by, the holders of any class of securities, creditors, or other constituencies of Walgreens; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Walgreens or Alliance Boots or any class of such persons in connection with the Transaction, whether relative to the Consideration to be paid by Walgreen Scotland to acquire the Second Step Company Shares pursuant to the Purchase and Option Agreement or otherwise. Goldman Sachs is not expressing any opinion as to the prices at which Walgreens Shares will trade at any time or as to the impact of the Transaction on the solvency or viability of Walgreens, Alliance Boots or AB Acquisitions or the ability of Walgreens, Alliance Boots or AB Acquisitions to pay their respective obligations when they come due. Goldman Sachs’ opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumes no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of the opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the Board in connection with its consideration of the acquisition of the Second Step Company Shares and such opinion does not constitute a recommendation as to how any holder of Walgreens Shares should vote with respect to the issuance of the Second Step Buyer Shares or any other matter. The opinion has been approved by a fairness committee of Goldman Sachs.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 1, 2014, and is not necessarily indicative of current market conditions.

Walgreens

Selected Companies Analysis. Goldman Sachs reviewed and compared certain financial information and public market multiples for Walgreens to corresponding financial information and public market multiples for the following publicly traded corporations (the “Walgreens selected companies”) in the North American drug retail industry:

 

    CVS Caremark Corp.; and

 

    Rite Aid Corp.

Although neither of the Walgreens selected companies is directly comparable to Walgreens, the Walgreens selected companies were chosen because they are publicly traded companies in the North American drug retail industry with business profiles that for purposes of analysis may be considered similar to Walgreens’ business profile.

With respect to the Walgreens selected companies, Walgreens on a current basis and Walgreens on a pro forma basis giving effect to the acquisition of the Second Step Company Shares, Goldman Sachs calculated the ratio of current market price to estimated fiscal year 2015 earnings (“2015E Forward P/E”). Goldman Sachs calculated each 2015E Forward P/E based on (i) closing market prices as of August 1, 2014 and (ii) financial data, as of August 1, 2014, that it obtained from Commission filings, Institutional Brokers’ Estimate System (“IBES”) consensus estimates and publicly available sources.

 

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The results of this analysis are summarized as follows:

 

Selected Companies

  

2015E Forward P/E

Walgreens—Current

   18.6x

Walgreens—Pro forma

   16.2x

CVS

   15.8x

Rite Aid

   16.5x

Goldman Sachs applied an illustrative range of 2015E Forward P/Es of 16.0x to 17.0x to the pro forma adjusted earnings per share (“EPS”) for fiscal year 2015 for Walgreens, based on the Forecasts and giving effect to the acquisition of the Second Step Company Shares as if it had occurred on September 1, 2014, the first day of fiscal year 2015 (the “2015 Pro Forma Adjusted EPS”). These illustrative 2015E Forward P/Es were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account current and historical trading data and the current P/E multiples for Walgreens and the Walgreens selected companies. Goldman Sachs then multiplied each of the minimum and maximum values in the illustrative range of 2015E Forward P/Es by the 2015 Pro Forma Adjusted EPS, which calculations yielded an illustrative range of implied per share values of Walgreens Shares of $64.46 to $68.48.

In addition, with respect to the Walgreens selected companies and Walgreens, Goldman Sachs calculated the median ratio of market price to next twelve months earnings in each of the calendar years 2004 through 2013 (“Historical Forward P/E”). Goldman Sachs calculated each Historical Forward P/E based on (i) daily closing market prices and (ii) financial data that it obtained from Commission filings, IBES consensus estimates and publicly available sources.

The results of this analysis are summarized as follows:

 

Selected Companies

  

Historical Forward P/E

Walgreens—Range

   11.7x – 26.0x

CVS—Range

   11.0x – 18.4x

Rite Aid—Range

   16.5x – 50.0x

Goldman Sachs applied an illustrative range of Historical Forward P/Es of 13.0x to 15.0x to the 2015 Pro Forma Adjusted EPS. These illustrative Historical Forward P/Es were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account historical average P/E multiples for Walgreens and the Walgreens selected companies. Goldman Sachs then multiplied each of the minimum and maximum values in the illustrative range of Historical Forward P/Es by the 2015 Pro Forma Adjusted EPS, which calculations yielded an illustrative range of implied per share values of Walgreens Shares of $52.37 to $60.43.

Illustrative Present Value of Future Share Price Analysis. Goldman Sachs performed an illustrative analysis of the implied present value of the future price (including projected future dividends) of Walgreens Shares, which is designed to provide an indication of the present value of a theoretical future value of Walgreens’ equity as a function of Walgreens’ estimated future earnings and its assumed price to future EPS multiple. For this analysis, Goldman Sachs multiplied (i) the 2015 Pro Forma Adjusted EPS and (ii) the pro forma adjusted EPS for fiscal years 2016 to 2018, based on the Forecasts and giving effect to the acquisition of the Second Step Company Shares, respectively, by an illustrative range of 1-year forward P/E multiples of 15.8x to 17.0x to determine the implied per share future equity value of Walgreens Shares. The 1-year forward P/E multiples were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account current and historical trading data and the current P/E multiples for Walgreens. The implied per share future equity values for the fiscal years ended 2014 to 2017 were then discounted to August 2014 (and projected dividends, per the Forecasts, were discounted using a mid-year convention) using a discount rate of 9.0%, reflecting an estimate of Walgreens’ cost of equity. This analysis yielded an illustrative range of implied per share present values of Walgreens Shares of $63.67 to $78.31 for fiscal years 2014 to 2017.

 

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Illustrative Discounted Cash Flow Analysis. Goldman Sachs performed an illustrative discounted cash flow analysis on Walgreens, using the Forecasts, to determine a range of illustrative per share present values of Walgreens Shares on a pro forma basis. Using illustrative discount rates ranging from 7.5% to 8.5%, reflecting estimates of Walgreens’ weighted average cost of capital (“WACC”), Goldman Sachs derived an illustrative range of implied enterprise values for Walgreens by calculating the present value, as of August 2014, of Walgreens’ projected pro forma unlevered free cash flows for (a) the fiscal years ended August 2015 through August 2018 based on the Forecasts and (b) illustrative terminal values based on perpetuity growth rates ranging from 1.5% to 2.5% (which implies a terminal multiple range of 7.8x to 11.0x). The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term growth of gross domestic product and inflation. Goldman Sachs derived the implied per share equity value of Walgreens Shares by deducting the value of Walgreens’ net debt (calculated by subtracting the sum of (i) (a) Walgreens’ cash and cash equivalents and (b) the estimated value of Walgreens’ warrants in AmerisourceBergen from the sum of (ii) (a) Walgreens’ estimated August 2014 total debt, (b) Walgreens’ estimated unfunded pension liability, (c) the estimated new debt issued in the acquisition of the Second Step Company Shares and (d) the assumed Alliance Boots net debt), and dividing the result by the number of pro forma fully diluted outstanding Walgreens Shares in accordance with information provided by Walgreens’ management. The analysis resulted in a range of illustrative values of $50.90 to $75.54 per share of Walgreens Shares.

Alliance Boots

Selected Companies Analysis. Goldman Sachs reviewed and compared certain financial information for Alliance Boots to corresponding financial multiples for the following publicly traded corporations (the “Alliance Boots selected companies”) in the following industries:

North American Drug Retail:

 

    Walgreens;

 

    CVS Caremark Corp.; and

 

    Rite Aid Corp.

North American Wholesale:

 

    AmerisourceBergen Corp.;

 

    Cardinal Health Inc.; and

 

    McKesson Corp.

European Wholesale:

 

    Galenica AG; and

 

    Celesio AG.

UK Food Retail:

 

    Wm. Morrison Supermarkets Plc;

 

    J Sainsbury Plc; and

 

    Tesco Plc.

EU Consumer:

 

    Reckitt Benckiser Group Plc; and

 

    Unilever Plc.

 

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Although none of the Alliance Boots selected companies is directly comparable to Alliance Boots, the companies were chosen because they are publicly traded companies in the North American drug retail and wholesale, European drug wholesale, UK food retail and European consumer products industries, each of which has business and operations that for the purposes of analysis may be considered similar to certain of Alliance Boots’ operations and business profile.

With respect to the Alliance Boots selected companies, Goldman Sachs calculated the enterprise value (which is defined as fully diluted equity value plus total debt, less total cash and cash equivalents), as of August 1, 2014, as a multiple (“2015E Forward EV/EBITDA”) of estimated 2015 earnings before interest, taxes, depreciation and amortization (“EBITDA”) (calendarized to August year end). Goldman Sachs calculated each 2015E Forward EV/EBITDA based on financial data, as of August 1, 2014, that it obtained from Commission filings, IBES consensus estimates and publicly available sources.

The results of this analysis are summarized as follows:

 

Selected Companies

   2015 Forward
EV/EBITDA

Walgreens—Current

   10.5x

Walgreens—Pro forma

   10.2x

CVS

   9.2x

Rite Aid

   9.1x

AmerisourceBergen

   10.2x

Cardinal Health

   9.5x

McKesson

   11.1x

Galenica

   12.5x

Celesio

   10.7x

Wm. Morrison Supermarkets

   7.2x

J. Sainsbury

   5.1x

Tesco

   6.8x

Reckitt Benckiser

   14.6x

Unilever

   11.8x

Goldman Sachs applied an illustrative range of 2015 Forward EV/EBITDAs of 9.0x to 10.5x to estimated 2015 EBITDA (calendarized to August year end) for Alliance Boots, based on the Forecasts. These illustrative 2015 Forward EV/EBITDAs were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account current and historical trading data and the current EV/EBITDA multiples for the Alliance Boots selected companies. Goldman Sachs then multiplied each of the minimum and maximum values in the illustrative range of 2015 Forward EV/EBITDAs by the estimated 2015 EBITDA (calendarized to August year end) for Alliance Boots, based on the Forecasts, which calculations yielded a range of illustrative enterprise values of $21,601 million to $25,202 million. Goldman Sachs then derived the implied equity value of a 55% stake in Alliance Boots by deducting the value of Alliance Boots’ net debt, and multiplying the result by a factor of 0.55. The analysis resulted in a range of values of $6,221 million to $8,201 million for a 55% equity stake in Alliance Boots.

Future Initial Public Offering Price Analysis. Goldman Sachs performed an analysis, assuming that Walgreens did not effect the acquisition of the Second Step Company Shares, of the theoretical present value of the future value of Alliance Boots’ equity in the context of an initial public offering (“IPO”) by Alliance Boots in August 2016. Goldman Sachs calculated the present value of Alliance Boots’ future IPO equity value using the Forecasts. Assuming dilution to current holders of Alliance Boots stock for additional financings, and applying a range of 1-year forward P/E multiples of 14.0x to 18.0x to Alliance Boots’ estimated 2017 net income, an IPO in August 2016 would result in an illustrative range of total equity values retained by current Alliance Boots shareholders of $17,369 million to $23,589 million. These illustrative 1-year forward P/E multiples were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account current and historical trading data and the current P/E multiples for the Alliance Boots selected companies. Applying a discount rate of

 

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9.0%, reflecting an estimate of Alliance Boots’ cost of equity, results in a range of present values of total equity retained by current Alliance Boots shareholders of $14,619 million to $19,854 million. Incorporating Alliance Boots’ net debt of $10,291 million, results in a range of estimated current enterprise values of $24,910 million to $30,145 million. Goldman Sachs then derived the implied equity value of a 55% stake in Alliance Boots by deducting $10,291 million, the value of Alliance Boots’ net debt, and multiplying the result by a factor of 0.55. The analysis resulted in a range of values of $8,040 million to $10,920 million for a 55% equity stake in Alliance Boots.

Illustrative Discounted Cash Flow Analysis. Goldman Sachs performed an illustrative discounted cash flow analysis on Alliance Boots, using the Forecasts, to determine a range of illustrative present enterprise values of Alliance Boots. Using illustrative discount rates ranging from 7.5% to 8.5%, reflecting estimates of Alliance Boots’ WACC, Goldman Sachs derived an illustrative range of implied enterprise values for Alliance Boots by calculating the present value, as of August 2014, of estimates of Alliance Boots’ unlevered free cash flows for (a) the years 2015 through 2018 based on the Forecasts and (b) illustrative terminal values based on perpetuity growth rates ranging from 1.0% to 2.0% (which implies a terminal multiple of 8.2x to 11.3x). The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term growth of gross domestic product and inflation. The analysis resulted in a range of illustrative enterprise values of $21,304 million to $28,287 million. Goldman Sachs then derived the implied equity value of a 55% stake in Alliance Boots by deducting $10,291 million, the value of Alliance Boots’ net debt, and multiplying the result by a factor of 0.55. The analysis resulted in a range of values of $6,057 million to $9,898 million for a 55% equity stake in Alliance Boots on a standalone basis.

Goldman Sachs performed an illustrative discounted cash flow analysis on the Synergies that would accrue to Walgreens shareholders net of the synergies that would accrue to Walgreens shareholders assuming Walgreens did not effect the acquisition of the Second Step Company Shares (the “Incremental Synergies”), using the Forecasts, to determine a range of illustrative present values of the Incremental Synergies. As further discussed in the section entitled “Certain Unaudited Prospective Financial Forecasts Prepared by Management” below and as provided to Goldman Sachs by Walgreens management, the Incremental Synergies for years 2015 through 2018, on an after-tax basis, were as follows: (i) approximately $191 million in 2015; (ii) approximately $795 million in 2016; (iii) approximately $993 million in 2017; and (iv) approximately $1.117 billion in 2018. Using illustrative discount rates ranging from 7.5% to 8.5%, reflecting estimates of Alliance Boots’ WACC, and based on perpetuity growth rates ranging from 1.0% to 2.0%, Goldman Sachs then discounted to present values the Incremental Synergies. Goldman Sachs then added to each present value of Incremental Synergies the value (the “AB Equity Clawback Value”) equal to 3% of the issued and outstanding share capital of Alliance Boots, representing an equity clawback in the event Walgreens did not effect the acquisition of the Second Step Company Shares. The analysis resulted in a range of present values of Incremental Synergies, including the AB Equity Clawback Value, of $12,104 million to $16,212 million.

Goldman Sachs then calculated an illustrative range of net values (calculated by adding the present value of the Incremental Synergies, including the AB Equity Clawback Value, to the implied equity value of a 55% stake in Alliance Boots, and subtracting from the result the Consideration) to current Walgreens shareholders resulting from the acquisition of the Second Step Company Shares. Assuming, based on Forecasts, that the pro forma per share price of Walgreens Shares will range from $50.90 per share to $75.54 per share, Goldman Sachs derived an illustrative range of net values of $1,994 million to $13,500 million, resulting from the acquisition of the Second Step Company Shares.

Selected Transactions Analysis. Goldman Sachs analyzed certain information relating to selected change-of-control transactions in the pharmaceutical retail and wholesale industries since 2003.

For each of the selected transactions, based on publicly available information, Goldman Sachs calculated and compared enterprise value as a multiple of latest twelve months (“LTM”) sales (“EV/LTM Sales”), and

 

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enterprise value as a multiple of LTM EBITDA (“EV/LTM EBITDA”). While none of the selected transactions is directly comparable to the acquisition of the Second Step Company Shares, the companies that participated in the selected transactions are companies involved in the pharmacy retail and healthcare services and distribution industries with operations that, for the purposes of analysis, may be considered similar to certain of Alliance Boots’ results, market size and product profile.

The following table presents the results of this analysis:

Retail

 

Date Announced

  

Target

  

Acquiror

   EV/LTM
Sales
     EV/LTM
EBITDA
 

07/18/14

   National Co-Operative Chemists Ltd.    Bestway (Holdings) Limited      0.8x         9.1x   

05/06/14

   Farmacias Ahumada S.A.    Alliance Boots      0.5x         12.1x   

07/15/13

   Shoppers Drug Mart Corp.    Loblaw Companies Limited      1.2x         11.4x   

02/17/10

   Duane Reade Inc.    Walgreens      0.6x         10.9x   

04/09/09

   WellPoint, Inc.    Express Scripts, Inc.      N/A         N/A   

08/12/08

   Longs Drug Store Corp.    CVS Caremark Corp.      0.5x         9.9x   

04/20/07

   Alliance Boots    KKR      0.8x         13.2x   

08/23/06

   Eckerd and Brooks    Rite Aid Corp.      0.4x         9.2x   

01/22/06

   Sav-on and Osco    CVS Caremark Corp.      0.5x         9.8x   

04/05/04

   Eckerd    CVS Caremark Corp.      0.3x         10.8x   

04/04/04

   Eckerd    Jean Coutu Group (PJC) Inc.      0.4x         9.1x   

12/22/03

   Duane Reade Inc.    Oak Hill Capital Partners      0.5x         9.8x   

Healthcare Services/Distribution

 

Date Announced

  

Target

  

Acquiror

   EV/LTM
Sales
     EV/LTM
EBITDA
 

10/24/13

   Celesio AG    McKesson Corp.      0.3x         11.6x   

10/25/12

   PSS World Medical, Inc.    McKesson Corp.      0.8x         10.6x   

07/21/11

   Medco Health Solutions, Inc.    Express Scripts Holding Corp.      0.5x         11.4x   

10/30/10

   Universal American Corp.    CVS Caremark Corp.      0.8x         8.4x   

10/29/10

   Zuellig Pharma China    Cardinal Health Inc.      0.5x         N/A   

10/18/10

   Andreae-Noris Zahn AG    Alliance Boots      0.1x         6.4x   

10/18/10

   Kinray, Inc.    Cardinal Health Inc.      0.4x         N/A   

06/19/08

   Apria Healthcare Group    Blackstone Group      0.8x         4.9x   

07/02/07

   Option Care, Inc.    Walgreens      1.2x         18.1x   

05/08/07

   VWR International, Inc.    Madison Dearborn Partners      0.9x         12.4x   

11/01/06

   Caremark Rx, Inc.    CVS Corp.      0.7x         13.2x   

10/03/05

   Alliance UniChem Plc    Boots Group PLC      0.5x         15.2x   

08/22/05

   Arrow Pharmaceuticals Limited    Sigma Company Limited      2.5x         17.8x   

07/21/05

   Priority Healthcare Corp.    Express Scripts, Inc.      0.8x         18.4x   

07/08/05

   D&K Resources, Inc.    McKesson Corp.      0.1x         15.1x   

02/22/05

   Accredo Health Inc.    Medco Health Solutions Inc.      1.5x         14.5x   

05/24/04

   NeighborCare Inc.    OmniCare, Inc.      1.2x         15.8x   

12/08/03

   Andreae-Noris Zahn AG    Alliance UniChem Plc      0.1x         9.4x   

10/29/03

   The Intercare Group PLC    Cardinal Health, Inc.      1.0x         10.5x   

Goldman Sachs applied an illustrative range of EV/LTM EBITDAs of 10.0x to 13.0x to Alliance Boots’ estimated August 2014 EBITDA, based on the Forecasts, and these calculations yielded a range of illustrative enterprise values of $22,787 million to $29,623 million. These illustrative EV/LTM EBITDAs were derived by

 

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Goldman Sachs utilizing its professional judgment and experience, taking into account Goldman Sachs’ review of precedent transactions. Goldman Sachs then derived the implied equity value of a 55% stake in Alliance Boots by deducting $10,291 million, the value of Alliance Boots’ net debt, and multiplying the result by a factor of 0.55. The analysis resulted in a range of values of $6,872 million to $10,632 million for a 55% equity stake in Alliance Boots.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Walgreens or Alliance Boots or the Transaction.

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Board as to the fairness from a financial point of view to Walgreens, as of the date of the opinion, of the Consideration to be paid by Walgreen Scotland to acquire the Second Step Company Shares pursuant to the Purchase and Option Agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the parties to the Purchase and Option Agreement, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The Consideration was determined through arm’s-length negotiations among the parties to the Purchase and Option Agreement and was approved by the Board. Goldman Sachs provided advice to Walgreens during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to Walgreens or the Board or that any specific amount of consideration constituted the only appropriate consideration for the acquisition of the Second Step Company Shares.

As described above, Goldman Sachs’ opinion to the Board was one of many factors taken into consideration by the Board in making its determination to acquire the Second Step Company Shares. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex H.

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Walgreens, Alliance Boots, AB Acquisitions, any of their respective affiliates and third parties, including KKR, an affiliate of significant shareholders of AB Acquisitions, and any of its affiliates and portfolio companies, or any currency or commodity that may be involved in the Transaction. Goldman Sachs has acted as financial advisor to Walgreens in connection with, and has participated in certain of the negotiations leading to, the Transaction. In addition, at the request of the Board, Goldman Sachs expects to act as underwriter or initial purchaser with respect to an offering by Walgreens of bonds in connection with the acquisition of the Second Step Company Shares, subject to the terms of such offering for which Goldman Sachs would expect to receive customary fees. Goldman Sachs has provided certain financial advisory and/or underwriting services to Walgreens and/or its affiliates from time to time for which its

 

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Investment Banking Division has received, and may receive, compensation, including having acted as joint lead arranger, joint bookrunner and administrative agent for a senior unsecured 364-day bridge loan facility (aggregate principal amount up to $3,500,000,000), which was provided to Walgreens in connection with the First Step Acquisition in July 2012; as joint bookrunner with respect to a public offering of four tranches of Walgreens’ Notes due March 2015 through September 2042 (aggregate principal amount $3,450,000,000) in September 2012; and as financial advisor to Walgreens in connection with its entrance into a strategic partnership with AmerisourceBergen in March 2013. Goldman Sachs also has provided certain financial advisory and/or underwriting services to Alliance Boots and/or its affiliates from time to time for which its Investment Banking Division has received, and may receive, compensation. Goldman Sachs also has provided certain financial advisory and/or underwriting services to KKR and/or its affiliates and portfolio companies from time to time for which its Investment Banking Division has received, and may receive, compensation, including having acted as joint book-running manager with respect to a public offering of 36,000,000 shares of common stock of Dollar General Corporation (“Dollar General”), a portfolio company of KKR, in September 2012; as joint book-running manager with respect to an offering of 6.5% Senior Notes due 2020 (aggregate principal amount $825,000,000) and 6.5% Senior Subordinated Notes due 2020 (aggregate principal amount $800,000,000) of Biomet, Inc., a portfolio company of KKR, in September 2012; as joint book-running manager with respect to a public offering of 38,500,000 shares of common stock of Nielsen Holdings N.V. (“Nielsen”), a portfolio company of KKR, in February 2013; as joint book-running manager with respect to a public offering of 30,000,000 shares of common stock of Dollar General in March 2013; as joint book-running manager with respect to a public offering of Dollar General’s 1.875% Senior Notes due 2018 (aggregate principal amount $400,000,000) and Dollar General’s 3.250% Senior Notes due 2023 (aggregate principal amount $900,000,000) in April 2013; as joint book-running manager with respect to a public offering of 35,000,000 shares of common stock of Nielsen in May 2013; as co-lead manager with respect to a public offering of 200,000,000 shares of common stock of Pets at Home Group Plc, a portfolio company of KKR, in March 2014; and as financial advisor to KKR in its acquisition of Panasonic Healthcare Co., Ltd., a subsidiary of Panasonic Corporation, in March 2014. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to Walgreens, Alliance Boots, AB Acquisitions, their respective affiliates, and KKR and its affiliates and portfolio companies for which its Investment Banking Division may receive compensation. Affiliates of Goldman Sachs also may have co-invested with affiliates of KKR from time to time and may have invested in limited partnership units of affiliates of KKR from time to time and may do so in the future. As of August 5, 2014, an affiliate of Goldman Sachs owned limited partnership interests representing approximately 3.9% of the capital commitments to a co-investment vehicle that holds a 16% ownership interest in AB Acquisitions (resulting in an affiliate of Goldman Sachs having a less than 0.35% indirect ownership interest in Alliance Boots).

The Board has selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Transaction. Pursuant to a letter agreement dated May 6, 2011 and amended on November 9, 2011, Walgreens engaged Goldman Sachs to act as its financial advisor in connection with the Transaction. Pursuant to the terms of this engagement letter, Walgreens has agreed to pay Goldman Sachs transaction fees for its services in connection with the Transaction, $2,500,000 and $22,500,000 of which were due upon signing of the Purchase and Option Agreement and consummation of the First Step Acquisition, respectively, and $17,500,000 of which is contingent upon consummation of the acquisition of the Second Step Company Shares. In addition, Walgreens has agreed to reimburse Goldman Sachs’ expenses arising, and indemnify Goldman Sachs against certain liabilities that may arise, out of its engagement.

Opinion of Lazard Frères & Co. LLC, Walgreens’ Financial Advisor

In connection with the exercise of the Call Option, on August 5, 2014, Lazard delivered its oral opinion to the Board, subsequently confirmed in writing, that, as of August 5, 2014, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the Consideration to be paid by Walgreens to exercise the Call Option, was fair, from a financial point of view, to Walgreens.

 

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The full text of Lazard’s written opinion, dated August 5, 2014, which sets forth the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken by Lazard in connection with its opinion is attached to this proxy statement/prospectus as Annex I and is incorporated into this proxy statement/prospectus by reference. The description of Lazard’s opinion set forth in this proxy statement/prospectus is qualified in its entirety by reference to the full text of Lazard’s written opinion attached as Annex I. You are encouraged to read Lazard’s opinion and this section carefully and in their entirety.

Lazard’s opinion was directed to the Board for the information and assistance of the Board in connection with its evaluation of the exercise of the Call Option and only addressed the fairness, from a financial point of view, to Walgreens of the Consideration as of the date of Lazard’s opinion. Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of Lazard’s opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of Lazard’s opinion. Lazard’s opinion did not express any opinion as to the price at which shares of Walgreens common stock may trade at any time subsequent to the announcement of the exercise of the Call Option. Lazard assumed, with the consent of Walgreens, a constant exchange rate of 1.68 USD/GBP. In addition, for purposes of its opinion, Lazard assumed, with the consent of Walgreens, that the exercise price for the Call Option will equal the Consideration, without any adjustments thereto or additional payments of cash or shares of Walgreens common stock to the holders of the ordinary shares of Alliance Boots. Lazard’s opinion did not address the relative merits of the exercise of the Call Option as compared to any other transaction or business strategy in which Walgreens might engage or the merits of the underlying decision by Walgreens to exercise the Call Option or execute the Amendment. Lazard’s opinion was not intended to and does not constitute a recommendation to any holder of shares of Walgreens common stock as to how such holder should vote or act with respect to the Transactions or any matter relating thereto.

In connection with its opinion, Lazard:

 

    Reviewed the financial terms and conditions of the Amendment and the Purchase and Option Agreement, as amended thereby;

 

    Analyzed certain publicly available historical business and financial information relating to Alliance Boots and Walgreens;

 

    Reviewed various financial forecasts and other data relating to the business of Alliance Boots, including separate sets of forecasts prepared by each of the managements of Walgreens and Alliance Boots (with Lazard being directed to use the forecasts relating to Alliance Boots prepared by the management of Walgreens for purposes of its opinion);

 

    Reviewed various financial forecasts and other data provided to Lazard by Walgreens relating to the business of Walgreens;

 

    Reviewed financial forecasts related to the projected synergies and other benefits, including the amount and timing thereof, anticipated by the management of Walgreens to be realized from the transactions effected, and to be effected, pursuant to the Purchase and Option Agreement;

 

    Held discussions with members of the senior management of Alliance Boots and Walgreens with respect to the businesses and prospect of Alliance Boots and Walgreens, and the projected synergies and other benefits, including the amount and timing thereof, anticipated by the management of Walgreens to be realized from the transactions effected, and to be effected, pursuant to the Purchase and Option Agreement;

 

    Reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally relevant in evaluating the businesses of Alliance Boots and Walgreens, respectively;

 

    Reviewed the financial terms of certain business combinations involving companies in lines of business Lazard believed to be generally relevant in evaluating the businesses of Alliance Boots and Walgreens, respectively;

 

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    Reviewed historical stock prices and trading volumes of Walgreens common stock; and

 

    Conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.

Lazard assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information. Lazard did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of Alliance Boots or Walgreens or concerning the solvency or fair value of Alliance Boots or Walgreens, and Lazard was not furnished with any such valuation or appraisal. With respect to the financial forecasts utilized in Lazard’s analyses, including those related to projected synergies and other benefits anticipated by the management of Walgreens to be realized from the transactions effected, and to be effected, pursuant to the Purchase and Option Agreement, Lazard assumed, with the consent of Walgreens, that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments as to the future financial performance of Alliance Boots and Walgreens, respectively, and such synergies and other benefits. In addition, Lazard assumed, with the consent of Walgreens, that the financial forecasts and projected synergies and other benefits projected by the management of Walgreens will be realized in the amounts and at the times contemplated thereby. Lazard assumed no responsibility for and expressed no view as to any such forecasts or the assumptions on which they are based.

In rendering its opinion, Lazard assumed, with the consent of Walgreens, that the exercise of the Call Option will be consummated on the terms described in the Purchase and Option Agreement, without any waiver or modification of any material terms or conditions. Lazard also assumed, with the consent of Walgreens, that obtaining the necessary governmental, regulatory or third party approvals and consents for the exercise of the Call Option will not have an adverse effect on Walgreens, Alliance Boots or the exercise of the Call Option. Lazard did not express any opinion as to any tax or other consequences that might result from the exercise of the Call Option or any related transaction, nor does Lazard’s opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that Walgreens obtained such advice as it deemed necessary from qualified professionals. Lazard expressed no view or opinion as to any terms or other aspects (other than the Consideration to the extent expressly specified herein) of the exercise of the Call Option or any related transaction, including, without limitation, the form or structure of the exercise of the Call Option or any agreements or arrangements entered into in connection with, or contemplated by, the exercise of the Call Option or the Purchase and Option Agreement. In addition, Lazard expressed no view or opinion (i) as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the Transactions or any related transaction, or class of such persons, relative to the Consideration or otherwise or (ii) with respect to the exercise of the Russia Option (as defined in the Purchase and Option Agreement) or any transaction related to the transfer of the equity of Alliance Boots Investment 1 Limited to AB Acquisitions or any other person.

In arriving at its opinion, Lazard considered the results of all of its analyses and reviews and did not attribute any particular weight to any factor, analysis or review considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses and reviews.

For purposes of its analyses and reviews, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Walgreens and Alliance Boots. No company, business or transaction used in Lazard’s analyses and reviews as a comparison is identical to Walgreens, Alliance Boots, the Call Option or the Step 2 Acquisition, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions used in Lazard’s analyses and reviews. The estimates contained in Lazard’s analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Lazard’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies,

 

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businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses and reviews are inherently subject to substantial uncertainty.

Summary of Lazard’s Financial Analyses

The following is a summary of the material financial analyses reviewed with the Board in connection with Lazard’s opinion, dated August 5, 2014. The summary of Lazard’s analyses and reviews provided below is not a complete description of the analyses and reviews underlying Lazard’s opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of analysis and review and the application of those methods to particular circumstances, and, therefore, is not readily susceptible to summary description. Considering selected portions of the analyses and reviews or the summary set forth below, without considering the analyses and reviews as a whole, could create an incomplete or misleading view of the analyses and reviews underlying Lazard’s opinion.

The summary of the analyses and reviews provided below includes information presented in tabular format. In order to fully understand Lazard’s analyses and reviews, the tables must be read together with the full text of each summary. The tables alone do not constitute a complete description of Lazard’s analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Lazard’s analyses and reviews.

Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 5, 2014, and is not necessarily indicative of current market conditions.

Implied Transaction Value

For purposes of the description of Lazard’s analyses below, the term “Implied Transaction Value” refers to the implied aggregate enterprise value for Alliance Boots, calculated as the sum of (i) the aggregate equity value implied by the Consideration, calculated based on Walgreens’ closing stock price on July 25, 2014, and prorated for a hypothetical purchase of 100% of Alliance Boots equity, plus (ii) net debt of Alliance Boots and other corporate adjustments applicable to Alliance Boots, as provided by Walgreens’ management:

 

Cash Consideration

  

Value of

Stock Consideration

  

Value of

Total Consideration

  

Implied Aggregate Equity
Value (Total Consideration
prorated for hypothetical
100% purchase)

$5,208 million

   $10,578 million    $15,786 million    $28,702 million
              

Net Debt and

Corporate Adjustments

         $9,838 million
              

Implied Transaction Value

         $38,540 million

 

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Discounted Cash Flow Analysis

Lazard performed a discounted cash flow analysis of Alliance Boots to calculate the implied present value of the standalone unlevered, after-tax free cash flows of Alliance Boots by adding (x) the free cash flow estimated by Walgreens’ management that Alliance Boots could generate during fiscal years 2014 through 2019, (y) an estimated terminal value of Alliance Boots and (z) the projected synergies and other benefits, including the amount and timing thereof, anticipated by the management of Walgreens to be realized, and discounting such amounts to present value. The terminal value of Alliance Boots was derived by applying a perpetuity growth rate to the estimated free cash flow for fiscal year 2019 ranging from 1.0% to 2.0%, which growth rates were selected using Lazard’s professional judgment and expertise, taking into consideration its understanding and analysis of companies operating in the industries in which Alliance Boots operates. These unlevered, after-tax cash flows, the terminal value of Alliance Boots and the estimated value of the projected synergies and other benefits anticipated by the management of Walgreens to be realized from the exercise of the Call Option were discounted to present value using discount rates ranging from 7.0% to 8.0%, which was based on Alliance Boots’ estimated weighted average cost of capital. This analysis indicated the following implied aggregate enterprise value range for Alliance Boots, as compared to the Implied Transaction Value:

 

Implied Enterprise Value Range for Alliance Boots

  

Implied Transaction Value

$44,988 million – $56,589 million

   $38,540 million

Lazard also performed a discounted cash flow analysis of Alliance Boots on the same basis as the foregoing analysis, but without taking into account the implied present value of the projected synergies and other benefits anticipated by the management of Walgreens to be realized from the exercise of the Call Option. This analysis indicated the following implied aggregate enterprise value range for Alliance Boots, as compared to the Implied Transaction Value:

 

Implied Enterprise Value Range for Alliance Boots

  

Implied Transaction Value

$24,097 million – $32,626 million

   $38,540 million

Comparable Public Companies Analysis

Lazard reviewed and analyzed selected public companies in the health & beauty and pharmaceutical wholesale industries that it viewed as reasonably comparable to the health & beauty and pharmaceutical wholesale businesses of Alliance Boots based on Lazard’s knowledge of those industries and financial and operating characteristics of such companies, including their size, profitability, geographic scope, market focus and business model. In performing these analyses, Lazard reviewed and analyzed certain financial information, valuation multiples and market trading data relating to the selected comparable companies and compared such information to the corresponding information for Alliance Boots.

 

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Specifically, Lazard compared Alliance Boots’ health & beauty business primarily to companies in the U.K. food retail, U.K. non-food retail, and North American pharmacy industries, and Alliance Boots’ pharmaceutical wholesale business primarily to companies in the pharmaceutical wholesale industry, as follows:

 

     EV/EBITDA  

Company

   8/2014E      8/2015E  

U.K. Food Retail

     

Tesco PLC

     6.4x         6.8x   

Wm. Morrison Supermarkets plc

     6.5x         7.5x   

J Sainsbury plc

     4.9x         4.9x   

U.K. Non-Food Retail

     

Marks & Spencer plc

     7.2x         6.9x   

Kingfisher plc

     6.8x         6.3x   

Next plc

     12.3x         11.4x   

Debenhams plc

     5.0x         4.8x   

North American Pharmacy

     

CVS Caremark Corporation

     10.1x         9.5x   

Rite Aid Corporation

     9.7x         9.4x   

Pharmaceutical Wholesale

     

McKesson Corporation

     13.4x         11.2x   

AmerisourceBergen Corporation

     11.8x         10.8x   

UDG Healthcare plc

     10.8x         9.7x   

Oriola-KD Corporation

     10.4x         8.1x   

As part of its selected comparable company analysis, Lazard calculated and analyzed each company’s ratio of its enterprise value to 2014 and 2015 estimated earnings before interest, taxes, depreciation and amortization, or EBITDA. The 2014 and 2015 estimated EBITDA for each of the selected companies listed above and used by Lazard in its analysis was based on public filings and other publicly available information. The enterprise value of each of the selected companies was obtained by adding its short and long-term debt to the sum of the market value of its common equity, the value of any preferred stock, the book value of any minority interest and the present value of any off-balance sheet liabilities, and subtracting its cash and cash equivalents, marketable securities and other financial investments, and the book value of any equity investments. Enterprise value calculations were performed, and based on publicly available financial data and closing prices, as of July 25, 2014.

Based on an analysis of the relevant metrics for each of the comparable companies and using its professional judgment and expertise and knowledge of the comparable companies, Lazard selected:

 

    for the health & beauty segment, reference ranges of (i) 9.0x to 11.0x for enterprise value to estimated 2014 EBITDA and (ii) 8.0x to 10.0x for enterprise value to estimated 2015 EBITDA; and

 

    for the pharmaceutical wholesale segment, reference ranges of (i) 10.0x to 12.0x for enterprise value to estimated 2014 EBITDA and (ii) 9.0x to 11.0x for enterprise value to estimated 2015 EBITDA.

Lazard then applied the applicable ranges to the estimated 2014 and 2015 EBITDA for each of Alliance Boots’ health & beauty and pharmaceutical wholesale businesses, in each case as provided by Walgreens’ management. Based on the foregoing, Lazard estimated an implied enterprise value range for each such business of Alliance Boots, and based on such implied enterprise value ranges, estimated an implied enterprise value range for Alliance Boots as a whole, as follows:

 

     Implied Enterprise Value Ranges based on:
     08/2014E LTM EBITDA    2015E EBITDA

Health & Beauty

   $16,291–$19,911 million    $14,739–$18,423 million

Pharmaceutical Wholesale

   $4,908–$5,889 million    $5,169–$6,317 million
  

 

  

 

Alliance Boots

   $21,199–$25,800 million    $19,907–$24,741 million

 

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Lazard selected the comparable companies listed above because their businesses and operating profiles are reasonably similar to that of Alliance Boots’ health & beauty and pharmaceutical wholesale businesses, as the case may be.

Selected Precedent Transactions

Lazard reviewed, to the extent publicly available, financial information relating to the following selected transactions involving companies in the health & beauty and pharmaceutical wholesale industries. The transactions were selected by Lazard using its professional judgment and expertise based on, among other factors, the similarity of the parties to and stated rationale for each such transaction as compared to Walgreens and Alliance Boots.

 

   

  Announcement Date  

 

Acquiror

 

Target

  Enterprise
Value
(in millions)
 

Health & Beauty

       
 

May 2014

  Alliance Boots GmbH   Farmacias Ahumada S.A.   $ 639   
 

May 2010

  Grupo Casa Saba S.A.B. de C.V.   Farmacias Ahumada S.A.   $ 615   
 

Feb. 2010

  Walgreen Co.   Duane Reade Holdings Inc.   $ 1,075   
 

Aug. 2008

  CVS Caremark Corporation   Longs Drug Stores Corporation   $ 2,880   
 

Apr. 2007

  Kohlberg Kravis Roberts & Co.; Stefano Pessina   Alliance Boots Plc   $ 22,613   
 

Aug. 2006

  Rite Aid Corporation   The Jean Coutu Group (PJC) USA Inc.   $ 3,470   
 

Jan. 2006

  CVS Corporation   Albertson’s, Inc.   $ 3,930   
 

Apr. 2004

  CVS Corporation   Eckerd Corporation   $ 2,150   
 

Apr. 2004

  The Jean Coutu Group (PJC) Inc.   Eckerd Corporation   $ 2,375   
 

Dec. 2003

  Oak Hill Capital Partners, L.P.   Duane Reade Inc.   $ 686   

Pharmaceutical Wholesale

       
 

Jan. 2014

  McKesson Corporation   Celesio AG   $ 7,597   
 

Oct. 2012

  McKesson Corporation   PSS World Medical Inc.   $ 2,101   
 

Nov. 2010

  Cardinal Health, Inc.   Kinray, Inc.   $ 1,300   
 

Jul. 2007

  Walgreen Co.   Option Care, Inc.   $ 809   
 

Oct. 2005

  Boots Group PLC   Alliance UniChem Plc   $ 7,734   
 

Aug. 2005

  Sigma Company Limited   Arrow Pharmaceuticals Limited   $ 509   
 

Jul. 2005

  Express Scripts Inc.   Priority Healthcare Corp.   $ 1,341   
 

Jul. 2005

  McKesson Corporation   D&K Healthcare Resources, Inc.   $ 474   
 

Jul. 2005

  Omnicare Inc.   NeighborCare Inc.   $ 1,816   
 

Feb. 2005

  Medco Health Solutions, Inc.   Accredo Health, Inc.   $ 2,507   

Lazard reviewed, among other things, the enterprise value of the target, represented by the implied transaction value of each of the selected transaction, as a multiple of last twelve months (LTM) EBITDA of the target company in such transaction. Financial data of the selected transactions were based on public filings and other publicly available information. Based on this analysis, Lazard observed the following ranges of enterprise value to LTM EBITDA multiples:

 

     EV/LTM EBITDA  
     Low      Median      Average      High  

Health & Beauty

     6.3x         10.7x         10.6x         13.8x   

Pharmaceutical Wholesale

     10.1x         15.4x         14.7x         17.5x   

 

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Based on an analysis of the ranges of enterprise value to LTM EBITDA multiples for each of the selected transactions and using its professional judgment and expertise and knowledge of the selected transactions, Lazard selected:

 

    for the selected transactions involving the health & beauty industry, reference ranges of 9.5x to 11.5x for enterprise value to LTM EBITDA; and

 

    for the selected transactions involving the pharmaceutical wholesale industry, reference ranges of 14.5x to 16.5x for enterprise value to LTM EBITDA.

Lazard applied each such range of multiples to the estimated LTM EBITDA, as of August 2014, for each of Alliance Boots’ health & beauty and pharmaceutical wholesale businesses, in each case as provided by Walgreens’ management. Based on the foregoing, Lazard estimated an implied enterprise value range for each such business of Alliance Boots, and based on such implied enterprise value ranges, estimated an implied enterprise value range for Alliance Boots as a whole, as follows:

 

     Implied Enterprise Value Range

Health & Beauty

   $17,196–$20,816 million

Pharmaceutical Wholesale

   $7,116–$8,098 million
  

 

Alliance Boots

   $24,312–$28,914 million

Miscellaneous

In connection with Lazard’s services as Walgreens’ financial advisor, Walgreens has agreed to pay to Lazard an aggregate fee of approximately $4 million, all of which was payable upon the rendering of Lazard’s opinion. Walgreens also has agreed to reimburse Lazard for its reasonable expenses, including reasonable attorneys’ fees, and to indemnify Lazard and certain related parties against certain liabilities that may arise out of the rendering of its advice, including certain liabilities under U.S. federal securities laws.

Lazard, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, and valuations for estate, corporate and other purposes. Lazard in the past has provided and in the future may provide investment banking services to Walgreens, for which Lazard has received and may receive compensation, including, in the past two years, having rendered a fairness opinion in connection with Walgreens’ entry into the Purchase and Option Agreement in June 2012, for which Lazard received customary fees. In addition, Lazard has in the past provided, currently are providing and may in the future provide certain investment banking services to KKR & Co. LP or its affiliates or to one or more of their respective portfolio companies, for which Lazard has received and may receive compensation. In the ordinary course of their respective businesses, Lazard and its affiliates and employees may trade securities of Alliance Boots, Walgreens and KKR & Co. LP for their own accounts for and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities, and may also trade and hold securities on behalf of Walgreens, Alliance Boots, KKR & Co. LP and certain of their respective affiliates.

Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and securities services. Lazard was selected to act as Walgreens’ financial advisor because of its qualifications, experience and reputation in investment banking and mergers and its familiarity with Walgreens and its business.

Lazard prepared the above analyses for the purpose of providing an opinion to the Board as to the fairness, from a financial point of view, to Walgreens of the Consideration. Lazard did not recommend any specific consideration to the Board or that any given consideration constituted the only appropriate consideration for the exercise of the Call Option.

 

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Lazard’s opinion and analyses were only one of many factors taken into consideration by the Board in its evaluation of the exercise of the Call Option. Consequently, the analyses described above should not be viewed as determinative of the views of the Board or Walgreens’ management with respect to the Consideration or as to whether the Board would have been willing to determine that a different consideration was fair.

Certain Unaudited Financial Forecasts Prepared by Management

Neither Walgreens nor Alliance Boots as a matter of course publicly discloses financial forecasts, due to the unpredictability of the underlying assumptions and estimates inherent in preparing financial forecasts. The unaudited prospective financial information concerning Walgreens’ and Alliance Boots’ anticipated operating performance set forth below are included in this proxy statement/prospectus only because it was made available to each of Goldman Sachs and Lazard in connection with rendering its respective fairness opinion to the Walgreens Board and its respective related financial analysis. Such information has not been updated, is not fact and should not be relied upon as being indicative of future results, and readers of this proxy statement/prospectus are cautioned not to rely on this forward-looking financial information. See “Cautionary Statement Regarding Forward-Looking Statements.”

The forecasts were prepared by Walgreens management and Alliance Boots management, respectively, and adjusted by Walgreens management in the case of unaudited prospective financial information concerning Alliance Boots, and should be read together with the historical financial statements of Walgreens (which have been filed with the Commission and are incorporated by reference into this proxy statement/prospectus) and Alliance Boots (which have been filed with the Commission and are incorporated by reference into this proxy statement/prospectus), respectively, and the other information regarding Walgreens and Alliance Boots, respectively, contained elsewhere in or incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.” Investors should note that the prospective financial information constitutes forward-looking statements. The forecasts set forth below were prepared solely for internal use and were not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the Commission or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Furthermore, certain of the forecasted measures do not purport to present Walgreens’ or Alliance Boots’ operations in accordance with GAAP or IFRS. Non-GAAP or non-IFRS financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP or IFRS, and non-GAAP or non-IFRS financial measures as used by Walgreens or Alliance Boots, as applicable, may not be comparable to similarly titled amounts used by other companies. None of Walgreens’ or Alliance Boots’ independent registered public accountants, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the forecasts contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the forecasts.

The following table presents forward-looking financial information of Walgreens on a standalone basis provided to Goldman Sachs and Lazard. Years shown are based on Walgreens’ fiscal year ended August 31.

 

     2015      2016      2017      2018  
     ($ in millions, except per share data)  

Revenue

     80,005         86,080         91,413         95,971   

EBITDA

     5,337         5,238         6,212         6,568   

Adjusted EPS

     3.20         3.40         3.49         3.73   

 

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The following table presents forward-looking financial information of Alliance Boots, as adjusted by Walgreens management, on a standalone basis provided to Goldman Sachs and Lazard. Years shown are based on an adjusted August 31 fiscal year end for Alliance Boots.

 

     2015      2016      2017      2018      2019  
     ($ in millions)  

Revenue

     41,089         42,334         43,346         44,596         46,041   

EBITDA

     2,415         2,541         2,639         2,703         2,772   

The following table presents forward-looking financial information regarding Walgreens and Alliance Boots on a pro forma combined basis, which information was provided to Goldman Sachs and Lazard. The combined forward-looking financial information presented below represents Walgreens management’s estimate of the combined operating performance of Walgreens and Alliance Boots on a pro forma basis after giving effect to the Step 2 Acquisition. Years shown are based on Walgreens’ fiscal year ended August 31.

 

     2015      2016      2017      2018  
     ($ in millions, except per share data)  

Revenue

     90,254         128,509         134,802         140,557   

EBITDA

     6,134         8,919         9,726         10,448   

Adjusted EPS

     3.40         4.62         5.23         5.86   

The forward-looking financial information relating to Walgreens and Alliance Boots on a pro forma combined basis assumed a closing date of March 1, 2015 for the Step 2 Acquisition, and further assumed that Walgreens would continue to account for the operations of Alliance Boots on a three month lag.

The following table presents forward-looking financial information regarding estimated incremental operating expense synergies of the combined company expected to be realized from the consummation of the Step 2 Acquisition, on an after-tax basis, which information was provided to Goldman Sachs and Lazard. Years shown are based on Walgreens’ fiscal year ended August 31.

 

     2015      2016      2017      2018  
     ($ in millions)  

Incremental Operating Expense Synergies from the Consummation of the Step 2 Acquisition (net of tax)

     191         795         993         1,117   

The forward-looking financial information relating to incremental operating expense synergies assumed a closing date of March 1, 2015 for the Step 2 Acquisition, and further assumed that Walgreens would continue to account for the operations of Alliance Boots on a three month lag.

While presented with numeric specificity, the forward-looking financial information reflects numerous estimates and assumptions made with respect to business, economic, global, market, competition, regulatory and financial conditions and matters specific to Walgreens’ and Alliance Boots’ businesses, and to the Step 2 Acquisition, all of which are difficult to predict and many of which are beyond Walgreens’, Alliance Boots’ and Walgreens Boots Alliance’s control. The forward-looking financial information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. In addition, since the forward-looking financial information covers multiple years, such information by its nature becomes less predictive with each successive year. The estimates underlying the forward-looking financial information are inherently uncertain and are subject to a wide variety of significant business, economic, global, market, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking financial information. See “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” Accordingly, there can be no

 

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assurances that the forward-looking financial information is indicative of the future performance of Walgreens, Alliance Boots or the combined company, respectively, or that actual results will not differ materially from those presented in the forward-looking financial information. Inclusion of the forward-looking financial information in this proxy statement/prospectus should not be regarded as a representation by any person that the results contained in the forward-looking financial information will be achieved, or that the forward-looking financial information should be construed as financial guidance, and it should not be relied on as such.

Furthermore, the forward-looking financial information does not take into account any circumstances or events occurring after the date it was prepared. None of Walgreens, Alliance Boots or Walgreens Boots Alliance can give any assurance that, had such information been prepared either as of the date of the Amendment or as of the date of this proxy statement/prospectus, similar estimates and assumptions would have been used. The standalone forward-looking financial information of Walgreens and Alliance Boots does not take into account the possible financial and other effects on either Walgreens or Alliance Boots, as applicable, of the Transactions and assumes that the Call Option is not exercised and that the Transactions are not consummated, and does not attempt to predict or suggest future results of the combined company. The standalone forward-looking financial information of Walgreens and Alliance Boots does not give effect to the Transactions, including the impact of negotiating or executing the Amendment or exercising the Call Option, the expenses that may be incurred in connection with consummating the Transactions, the potential synergies that may be achieved by the combined company as a result of the Transactions, the effect on either Walgreens or Alliance Boots, as applicable, of any business or strategic decision or action that has been or will be taken as a result of the Amendment having been executed and the Call Option having been exercised, or the effect of any business or strategic decisions or actions which may have been taken if the Amendment had not been executed and the Call Option had not been exercised, but which were instead altered, accelerated, postponed or not taken in anticipation of the Transactions. The forward-looking financial information relating to incremental operating expense synergies and the forward-looking financial information relating to Walgreens and Alliance Boots on a pro forma combined basis does not attempt to reflect all possible considerations or financial, operational, accounting or tax impacts associated with the Transactions.

None of Walgreens, Alliance Boots or Walgreens Boots Alliance intends to update or otherwise revise the forward-looking financial information to reflect circumstances existing since its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Furthermore, none of Walgreens, Alliance Boots or Walgreens Boots Alliance intends to update or revise the forward-looking financial information to reflect changes in general economic, industry or other conditions.

The information concerning forward-looking financial information is not included in this document in order to induce any shareholder to vote in favor of the Transactions, or to acquire securities of Walgreens, Alliance Boots, Walgreens Boots Alliance or otherwise.

Material U.S. Federal Income Tax Considerations

The following general discussion describes (1) the material U.S. federal income tax consequences of the Reorg Merger to U.S. Holders (as defined below) and Non-U.S. Holders (as defined below) of shares of Walgreens common stock that exchange their shares of Walgreens common stock for shares of Walgreens Boots Alliance common stock in the Reorg Merger and (2) the material U.S. federal income tax considerations to Non-U.S. Holders related to the ownership and disposition of shares of Walgreens Boots Alliance common stock received in the Reorg Merger. This discussion is based on current provisions of the Code, the Treasury regulations promulgated thereunder, judicial interpretations thereof and administrative rulings and published positions of the Internal Revenue Service (“IRS”), all as in effect as of the date hereof and all of which are subject to change or different interpretations, possibly with retroactive effect, and any such change could affect the accuracy of the statements and conclusions set forth herein.

 

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This discussion is limited to U.S. Holders and Non-U.S. Holders of shares of Walgreens common stock and, after the completion of the Reorg Merger, Non-U.S. Holders of shares of Walgreens Boots Alliance common stock received in the Reorg Merger that hold their shares of Walgreens common stock and Walgreens Boots Alliance common stock, respectively, as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion is for general information only and does not purport to address all aspects of U.S. federal income taxation that may be relevant to particular holders in light of their personal circumstances and does not apply to holders subject to special rules under the U.S. federal income tax laws (including, for example, U.S. Holders having a “functional currency” other than the U.S. dollar, persons subject to special rules applicable to former citizens and residents of the United States, banks or other financial institutions, mutual funds, persons subject to the alternative minimum tax, grantor trusts, real estate investment trusts, S corporations or other pass-through entities or arrangements (or investors in S corporations or other pass-through entities or arrangements), insurance companies, tax-exempt organizations, dealers in securities or currencies, traders in securities who elect to apply a mark-to-market method of accounting, persons holding shares of Walgreens common stock or Walgreens Boots Alliance common stock, as applicable, in connection with a hedging transaction, straddle, conversion transaction or other integrated transaction, holders who acquired their shares of Walgreens common stock or Walgreens Boots Alliance common stock, as applicable, through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan), or holders who exercise dissenters’ rights. This discussion does not address the tax consequences to any holder of shares of Walgreens common stock who, at any time within the five-year period ending on the date of the Reorg Merger has owned, actually or constructively, at least 5% of the stock of Walgreens, and any holder of shares of Walgreens Boots Alliance common stock that owns, actually or constructively, at least 5% of the stock of Walgreens Boots Alliance. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, or any state, local or foreign tax consequences, nor does it address any U.S. federal tax considerations other than those pertaining to the income tax. Holders of shares of Walgreens common stock should consult their own tax advisors as to the particular tax consequences to them of the Reorg Merger and of the ownership and disposition of shares of Walgreens Boots Alliance common stock received in the Reorg Merger, including the applicability of any U.S. federal income and other tax laws, any state, local or foreign tax laws or any treaty, and any changes (or proposed changes) in tax laws or interpretations thereof.

If any entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of Walgreens common stock, or, after completion of the Reorg Merger, shares of Walgreens Boots Alliance common stock, the tax treatment of a person treated as a partner in such partnership will generally depend upon the status of the partner and upon the activities of the partnership. Persons that for U.S. federal income tax purposes are treated as a partner in a partnership holding shares of Walgreens common stock or, after the completion of the Reorg Merger, shares of Walgreens Boots Alliance common stock, should consult their own tax advisors regarding the tax consequences to them of the Reorg Merger and of the ownership and disposition of shares of Walgreens Boots Alliance common stock received in the Reorg Merger.

HOLDERS OF SHARES OF WALGREENS COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER AND OF THE OWNERSHIP AND DISPOSITION OF SHARES OF WALGREENS BOOTS ALLIANCE COMMON STOCK RECEIVED IN THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.

As used in this discussion, the term “U.S. Holder” means a beneficial owner of shares of Walgreens common stock that is, for U.S. federal income tax purposes:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

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    an estate whose income is includible in gross income for U.S. federal income tax purposes, regardless of its source; or

 

    a trust (a) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust, or (b) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.

As used in this discussion, the term “Non-U.S. Holder” means a beneficial owner of shares of Walgreens common stock, or after completion of the Reorg Merger, shares of Walgreens Boots Alliance common stock, that is not a U.S. Holder (other than an entity or arrangement treated as a partnership for U.S. federal income tax purposes).

Material U.S. Federal Income Tax Consequences of the Reorg Merger

The following is a general discussion of the material U.S. federal income tax consequences of the Reorg Merger to U.S. Holders and Non-U.S. Holders that exchange their shares of Walgreens common stock for shares of Walgreens Boots Alliance common stock in the Reorg Merger.

The completion of the Reorg Merger is conditioned upon the receipt by Walgreens of an opinion from Wachtell, Lipton, Rosen & Katz satisfactory to Walgreens to the effect that the Reorg Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code and/or a transaction described in Section 351(a) of the Code. The opinion will be based on officer’s certificates provided by Walgreens and on certain assumptions set forth therein. The opinion will not be binding on the IRS or the courts. Walgreens has not sought and will not seek any ruling from the IRS regarding any matters relating to the Reorg Merger, and as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to the conclusions set forth below. In addition, if any of the representations or assumptions on which the opinion is based are inconsistent with the actual facts, the U.S. federal income tax consequences of the Reorg Merger could be adversely affected. The remainder of this discussion assumes that the Reorg Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code and/or a transaction described in Section 351(a) of the Code.

Based on the foregoing, the material U.S. federal income tax consequences of the Reorg Merger to U.S. Holders and Non-U.S. Holders of shares of Walgreens common stock that exchange their shares of Walgreens common stock for shares of Walgreens Boots Alliance common stock in the Reorg Merger are as follows:

 

    a U.S. Holder or Non-U.S. Holder who receives shares of Walgreens Boots Alliance common stock in exchange for shares of Walgreens common stock pursuant to the merger will not recognize gain or loss;

 

    the aggregate tax basis of the shares of Walgreens Boots Alliance common stock received in the Reorg Merger will be the same as the aggregate tax basis of the shares of Walgreens common stock exchanged therefor; and

 

    the holding period of the shares of Walgreens Boots Alliance common stock received in exchange for shares of Walgreens common stock in the Reorg Merger will include the holding period of the shares of Walgreens common stock exchanged therefor.

Holders who acquired different blocks of shares of Walgreens common stock at different times or different prices should consult their tax advisors as to the determination of the tax bases and holding periods of the shares of Walgreens Boots Alliance common stock received in the Reorg Merger.

 

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Material U.S. Federal Income Tax Considerations to Non-U.S. Holders Relating to the Ownership and Disposition of Shares of Walgreens Boots Alliance Common Stock Received in the Reorg Merger

The following is a general discussion of the material U.S. federal income tax considerations to Non-U.S. Holders relating to the ownership and disposition of shares of Walgreens Boots Alliance common stock received in the Reorg Merger.

Distributions on Shares of Walgreens Boots Alliance Common Stock

Distributions with respect to shares of Walgreens Boots Alliance common stock generally will constitute dividends for U.S. federal income tax purposes to the extent paid from Walgreens Boots Alliance’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will generally be treated as a tax-free return of capital to the extent of (and will be applied against and reduce, but not below zero) the adjusted tax basis in a Non-U.S. Holder’s shares of Walgreens Boots Alliance common stock. Any excess will generally be treated as gain realized on the sale or other taxable disposition of shares of Walgreens Boots Alliance common stock and will be treated as described below under “—Gain on the Sale, Exchange or Other Taxable Disposition of Walgreens Boots Alliance Common Stock.”

Distributions paid to a Non-U.S. Holder with respect to its shares of Walgreens Boots Alliance common stock that are treated as dividends for U.S. federal income tax purposes generally will be subject to U.S. federal withholding tax at a rate of 30%, or such lower rate as may be specified by an applicable income tax treaty, unless such dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment of the Non-U.S. Holder in the United States).

Distributions that are treated as dividends for U.S. federal income tax purposes paid to a Non-U.S. Holder with respect to such Non-U.S. Holder’s shares of Walgreens Boots Alliance common stock that are effectively connected with such Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment of the Non-U.S. Holder in the United States) generally will not be subject to U.S. federal withholding tax, provided that the Non-U.S. Holder complies with applicable certification and other requirements. Instead, such dividends generally will be subject to U.S. federal income tax on a net income basis and at the graduated U.S. federal income tax rates in the same manner as if such Non-U.S. Holder were a U.S. person. A Non-U.S. Holder that is a corporation may also be subject to an additional “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on its “effectively connected earnings and profits” for the taxable year, subject to certain adjustments.

Non-U.S. Holders should consult their own tax advisors regarding their entitlement to benefits under an applicable income tax treaty and the requirements for claiming any such benefits.

Gain on the Sale, Exchange or Other Taxable Disposition of Shares of Walgreens Boots Alliance Common Stock

Subject to the discussion below under “—Information Reporting and Backup Withholding” and “—Recent Legislation,” a Non-U.S. Holder generally will not be subject to U.S. federal income tax or withholding tax on any gain realized upon the sale, exchange or other taxable disposition of shares of Walgreens Boots Alliance common stock received in the Reorg Merger unless:

 

    the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable tax treaty, is attributable to a permanent establishment of the Non-U.S. Holder in the United States);

 

    the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are satisfied; or

 

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    Walgreens Boots Alliance is or has been a U.S. real property holding corporation (“USRPHC”) for U.S. federal income tax purposes at any time within the shorter of the five-year period ending on the date of the disposition and the Non-U.S. Holder’s holding period and shares of Walgreens Boots Alliance common stock are not “regularly traded on an established securities market” at any time during the calendar year in which the sale or other disposition occurs.

Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis and at regular graduated U.S. federal income tax rates in the same manner as if such Non-U.S. Holder were a U.S. person. A Non-U.S. holder that is a corporation may also be subject to an additional “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on its “effectively connected earnings and profits” for the taxable year, subject to certain adjustments.

Gain described in the second bullet point above will be subject to U.S. federal income tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty), but may be offset by U.S. source capital losses, if any, of the Non-U.S. Holder.

Information Reporting and Backup Withholding

Generally, Walgreens Boots Alliance must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to the Non-U.S. Holder and the amount of tax, if any, withheld with respect to such dividends. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable income tax treaty. This information may also be made available to the tax authorities in the country in which a Non-U.S. Holder resides or is established pursuant to the provisions of a specific treaty or agreement with such tax authorities.

U.S. backup withholding tax (currently, at a rate of 28%) is imposed on certain payments to persons that fail to furnish the information required under the U.S. information reporting rules. Dividends paid to a Non-U.S. Holder generally will be exempt from backup withholding if the non-U.S. holder provides the applicable withholding agent with a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, or otherwise establishes an exemption.

Under U.S. Treasury regulations, the payment of proceeds from the disposition of shares of Walgreens Boots Alliance common stock by a Non-U.S. Holder effected at a U.S. office of a broker generally will be subject to information reporting and backup withholding, unless such Non-U.S. Holder certifies under penalties of perjury, among other things, its non-U.S. status or otherwise establishes an exemption. The payment of proceeds from the disposition of shares of Walgreens Boots Alliance common stock by a Non-U.S. Holder effected at a non-U.S. office of a U.S. broker or a non-U.S. broker with certain specified U.S. connections generally will be subject to information reporting (but not backup withholding) unless the broker has documentary evidence in its files that the owner is a non-U.S. person and certain other conditions are satisfies, or the Non-U.S. Holder otherwise establishes an exemption. Backup withholding will apply if the sale or other taxable disposition is subject to information reporting and the broker has actual knowledge that the Non-U.S. Holder is a U.S. person.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder generally will be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.

Recent Legislation

Under recently enacted legislation and administrative guidance, a U.S. federal withholding tax of 30% generally will be imposed on certain payments made to a “foreign financial institution” (as specifically defined under these rules) unless such institution enters into an agreement with the U.S. tax authorities to withhold on

 

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certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these withholding and reporting requirements may be subject to different rules. Under the legislation and administrative guidance, a U.S. federal withholding tax of 30% generally also will be imposed on certain payments made to a non-financial foreign entity unless such entity provides the withholding agent with a certification identifying certain of its direct and indirect U.S. owners. Under certain circumstances, a Non-U.S. Holder may be eligible for refunds or credits of such taxes. These withholding taxes would be imposed on dividends paid with respect to shares of Walgreens Boots Alliance common stock to, and on gross proceeds from the sale or other taxable disposition of shares of Walgreens Boots Alliance common stock after December 31, 2016 by, foreign financial institutions or non-financial entities (including in their capacity as agents or custodians for beneficial owners of shares of Walgreens Boots Alliance common stock) that fail to satisfy the above requirements. Non-U.S. Holders should consult with their tax advisors regarding the possible implications of this legislation on their ownership and disposition of shares of Walgreens Boots Alliance common stock received in the Reorg Merger.

The preceding discussion is intended only as a general discussion of the material U.S. federal income tax consequences of the Reorg Merger and the material U.S. federal income tax considerations to Non-U.S. Holders relating to the ownership and disposition of shares of Walgreens Boots Alliance common stock received in the Reorg Merger. It is not a complete analysis or discussion of all potential tax effects that may be important to particular holders. Holders of shares of Walgreens common stock, or, after the completion of the Reorg Merger, shares of Walgreens Boots Alliance common stock, should consult their own tax advisors as to the particular tax consequences to them of the Reorg Merger and of the ownership and disposition of shares of Walgreens Boots Alliance common stock received in the Reorg Merger, including tax return reporting requirements, the applicability and effect of federal, state, local and other tax laws and the effect of any proposed changes in the tax laws.

Accounting Treatment

Walgreens Boots Alliance will account for the Transactions using the purchase method of accounting in accordance with GAAP, with Walgreens being treated as the accounting acquiror. The purchase price will include the Walgreens Boots Alliance common stock to be issued to the Sellers in connection with the Step 2 Acquisition and the amount of net cash consideration. For accounting purposes, the value of the Walgreens Boots Alliance common stock to be issued to the Sellers in the Step 2 Acquisition will be based on the closing price of Walgreens common stock on the closing date of the Step 2 Acquisition. This purchase price will be allocated to the individual tangible and intangible assets acquired and liabilities assumed from Alliance Boots based on their fair market values at the date of the completion of the Step 2 Acquisition. Any excess of the purchase price over these fair market values will be treated as goodwill. The acquired assets, liabilities and results of operations will be consolidated into the assets, liabilities and results of operations of Walgreens Boots Alliance on a prospective basis after the completion of the Transactions.

Regulatory Approvals

The parties have agreed that they will cooperate with each other and use reasonable best efforts to take all actions and do all things necessary, proper or desirable to consummate the Step 2 Acquisition as soon as reasonably practicable. These reasonable best efforts include an obligation to obtain as promptly as reasonably practicable all regulatory approvals and consents. None of the parties is required, however, to agree to: (i) divest, discontinue or limit any assets; (ii) any conditions or restrictions relating to the operations of any assets that would reasonably be expected to materially and adversely impact the business of, or the economic or business benefits of the Step 2 Acquisition to, the parties; or (iii) any modification or waiver of the terms and conditions of the Purchase and Option Agreement that would reasonably be expected to materially and adversely impact the business of, or the economic or business benefits of the Step 2 Acquisition to, the parties.

 

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The completion of the Transactions is conditioned on the receipt of antitrust and competition approvals in the Czech Republic, Mexico and Turkey. The parties submitted merger notifications in each of these jurisdictions and have obtained merger clearance in each jurisdiction.

Although Walgreens has obtained merger clearance in the Czech Republic, Mexico, and Turkey, certain jurisdictions can challenge the Transactions on antitrust grounds after the consummation of the Transactions. Although such challenges are unlikely and Walgreens does not believe that the Transactions will violate the applicable laws in any of these jurisdictions, there can be no assurance that a challenge to the Transactions will not be made or, if a challenge is made, of the result of such a challenge.

Walgreens is not aware of any material governmental approvals or actions that are required for completion of the Transactions other than those described in this proxy statement/prospectus. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Listing

If the Reorganization is completed, Walgreens will delist its common stock from the NYSE, NASDAQ and the Chicago Stock Exchange, and will deregister its common stock under the Exchange Act, as a result of which Walgreens will no longer be required to file annual, quarterly, current and other reports with the Commission. Shares of Walgreens Boots Alliance common stock are not currently listed on any national securities exchange. If the Reorganization is completed, we expect shares of Walgreens Boots Alliance common stock to trade on one or more U.S. national securities exchanges, and under ticker symbol(s), in each case to be determined and publicly disclosed by Walgreens and Walgreens Boots Alliance prior to the closing of the Reorganization, and Walgreens Boots Alliance will become Walgreens’ successor registrant with the Commission.

Shares of Walgreens Boots Alliance common stock issuable in connection with the Reorganization will be freely transferable under the Securities Act.

Shares of Walgreens Boots Alliance (or Walgreens, as applicable) common stock issued in connection with the Step 2 Acquisition will be issued in a transaction exempt from the registration requirements of the Securities Act, and, accordingly, will not be registered pursuant to the registration statement of which this proxy statement/prospectus forms a part. Such shares will also be subject to certain provisions relating to transfer restrictions and registration rights set forth in the Walgreens Shareholders Agreement as described in the section titled “Walgreens Shareholders Agreement.”

Walgreens’ Directors and Executive Officers May Have Financial Interests in the Transactions

Walgreens’ executive officers and members of the Board, and associates of each of the foregoing persons, may be deemed to have interests in the Transactions in addition to, or different from, Walgreens shareholders generally. The Board was aware of and considered these interests in evaluating and negotiating the Purchase and Option Agreement, in evaluating the Call Option and Step 2 Acquisition and in exercising the Call Option, in evaluating the Reorganization Merger Agreement, and in recommending to Walgreens shareholders that they vote to approve the Reorganization Proposal, the Share Issuance Proposal and the Adjournment Proposal. These interests are described in further detail below.

Treatment of Walgreens Equity-Based Awards

In connection with the Reorganization, each Walgreens stock option, restricted stock unit award (including each special transition award described below) and performance share award, including those held by Walgreens executive officers, that is outstanding immediately prior to the effective time of the Reorg Merger will automatically be converted into an equivalent award with respect to the number of shares of Walgreens Boots Alliance common stock that is equal to the number of shares of Walgreens common stock to which such award related immediately prior to the effective time of the Reorg Merger, which equivalent award will otherwise have

 

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the same terms, and be subject to the same conditions, that were applicable to such award immediately prior to the effective time of the Reorg Merger. Also in connection with the Reorganization, each outstanding Walgreens deferred stock unit award held by a Walgreens non-employee director immediately prior to the effective time of the Reorg Merger will automatically be converted into an equivalent award with respect to the number of shares of Walgreens Boots Alliance common stock that is equal to the number of shares of Walgreens common stock to which the award related immediately prior to the effective time of the Reorg Merger, which equivalent award will otherwise have the same terms, and be subject to the same conditions, that were applicable to such award immediately prior to the effective time of the Reorg Merger.

None of the Share Issuance, the Step 2 Acquisition or the Reorganization will constitute a “change in control” under any Walgreens equity-based award plans (or the individual award agreements thereunder); consequently, the outstanding Walgreens equity-based awards will not benefit from accelerated vesting in connection with the Transactions and, except for their conversion into awards with respect to Walgreens Boots Alliance common stock, such awards (other than the special transition awards) will not be impacted by the proposed Transactions. The vesting of the special transition awards is contingent upon the occurrence of the Step 2 Acquisition and, if the Step 2 Acquisition occurs, then the special transition awards will vest in accordance with the terms and conditions described below under “—Special Transition Awards.”

Special Transition Awards

Walgreens has granted special transition awards to certain of its executive officers in anticipation of the Step 2 Acquisition. Each special transition award is in the form of restricted stock units and will generally vest (1) with respect to 40% of the restricted stock units subject to the award, on the closing date of the Step 2 Acquisition, subject to the executive officer’s continued employment with Walgreens through such date and (2) with respect to 60% of the restricted stock units subject to the award, on the first anniversary of the closing date of the Step 2 Acquisition, subject to (a) the executive officer’s continued employment with Walgreens through the date of such anniversary and (b) the attainment of a company performance goal in respect of the fiscal year ending August 31, 2015. If the Purchase and Option Agreement is terminated for any reason without the occurrence of the closing of the Step 2 Acquisition, then all special transition awards granted to executive officers will be forfeited. For an estimate of the value that would be received by each of Walgreens’ named executive officers on settlement of their special transition awards, see “—Quantification of Potential Payments to Walgreens’ Named Executive Officers in Connection with the Step 2 Acquisition”. Walgreens estimates that the aggregate value that would be received by Walgreens’ other executive officers on settlement of their special transition awards if the closing of the Step 2 Acquisition were to occur on March 9, 2015, assuming that all service-based and performance-based vesting conditions are met, and based on a price per share of Walgreens common stock of $61.63, the average closing price of a share of Walgreens common stock over the first five business days following the first announcement of the exercise of the Call Option, is $8,450,151.

Continuing Executive and Director Positions

It is currently expected that, upon completion of the Transactions, the Board of Walgreens as of immediately prior to the completion of the Transactions will continue to serve as directors of Walgreens Boots Alliance following the Transactions. In addition, it is currently expected that, upon closing of the Reorganization (1) Mr. Wasson, President and CEO and member of the Board is expected to continue in those roles for Walgreens Boots Alliance, (2) Mr. Skinner, Chairman of the Board, will continue in that role for Walgreens Boots Alliance, and (3) Mr. Pessina, currently a member of the Board and Executive Chairman of Alliance Boots, will continue to serve on the Board of Walgreens Boots Alliance and will serve as executive vice chairman of Walgreens Boots Alliance responsible for strategy and M&A, assisted in this role by Marco Pagni, currently Executive Director of Alliance Boots responsible for M&A, with Mr. Pessina reporting, in that executive capacity, to Mr. Wasson. In addition, certain of Walgreens’ other executive officers are currently expected to serve as executive officers of Walgreens Boots Alliance, including as follows:

 

    Mr. Berkowitz, co-president of WBAD, is expected to serve as the president of pharma and global market access for Walgreens Boots Alliance;

 

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    Mr. Gourlay, Walgreens executive vice president and president of customer experience and daily living, is expected to become executive vice president of Walgreens Boots Alliance and president of Walgreens;

 

    Mr. McLevish, Walgreens executive vice president and chief financial officer, is expected to serve in that role in a global capacity for Walgreens Boots Alliance;

 

    Mr. Sabatino, Walgreens executive vice president, chief legal and administrative officer and corporate secretary, is expected to serve as executive vice president and global chief legal and administrative officer of Walgreens Boots Alliance;

 

    Mr. Theriault, Walgreens senior vice president and chief information, innovation and improvement officer, is expected to assume the role of executive vice president and global chief information officer of Walgreens Boots Alliance; and

 

    Ms. Wilson-Thompson, Walgreens senior vice president and chief human resources officer, is expected to become executive vice president and global chief human resources officer of Walgreens Boots Alliance.

Additional Interests of Messrs. Pessina, Gourlay and Dominic Murphy

Mr. Pessina, the Executive Chairman of Alliance Boots, and Mr. Dominic Murphy, an executive of KKR and certain of its affiliates, are each members of the Board. The principal Seller in the Step 2 Acquisition is AB Acquisitions, a privately held limited company incorporated in Gibraltar, which is jointly controlled by Mr. Pessina and investment funds affiliated with KKR. Mr. Pessina and investment funds affiliated with KKR, directly or indirectly, beneficially own 100% of the voting stock in AB Acquisitions and voting and non-voting stock representing, in aggregate, 65.8% of the economic interests in AB Acquisitions. The remaining 34.2% of the economic interests in AB Acquisitions, represented by shares of non-voting stock, are beneficially owned by various co-investors, including persons that hold limited partnership or other equity interests in certain co-investment vehicles which are indirectly jointly controlled by affiliates of Mr. Pessina and affiliates of KKR. AB Acquisitions currently holds the remaining 55% of the equity interests in Alliance Boots not owned by Walgreens (subject to the interests of the MEP, as described below). After giving effect to the MEP Restructuring described elsewhere in this proxy statement/prospectus, the SP Investors will be entitled to receive approximately 34.1% of the Step 2 Acquisition consideration and the KKR Investors will be entitled to receive approximately 30.2% of the Step 2 Acquisition consideration. If the Step 2 Acquisition were consummated on March 9, 2015, it is estimated that the value of the portion of the Step 2 Acquisition consideration payable to the SP Investors and the KKR Investors would be approximately $4,690.5 million and $4,152.6 million, respectively, based on the closing price of Walgreens common stock as reported on the NYSE on October 20, 2014 of $60.20 and an exchange rate of £1=$1.6165.

Participants in the MEP hold, through the trustee of the MEP, approximately 2.7% of the share capital in an intermediate holding company of Alliance Boots. Pursuant to the terms of the MEP, these participants will be entitled to receive a portion of the consideration to be paid by Walgreens on completion of the Step 2 Acquisition. The Purchase and Option Agreement provides that prior to the Step 2 Acquisition, pursuant to the terms of the MEP, the Trustee will exchange the MEP participants’ equity interests in the Alliance Boots intermediate holding company for Alliance Boots shares, which will be sold along with AB Acquisitions’ Alliance Boots shares to Walgreens (the “MEP Restructuring”). Immediately after the closing of the Step 2 Acquisition, Walgreens will own 100% of Alliance Boots and Alliance Boots will hold 100% of the intermediate holding company, without any minority interests. AB Acquisitions has agreed that the economic impact of these MEP interests and related payments will be borne solely by AB Acquisitions, and not Alliance Boots or Walgreens, out of the proceeds of the Step 2 Acquisition. Effective September 28, 2014, Mr. Pessina transferred his remaining interests in the MEP to the SP Investors. Alexander W. Gourlay, currently Walgreens’ executive vice president and president of customer experience and daily living, owns an interest in the MEP. Mr. Gourlay served as chief executive of the health & beauty division of Alliance Boots from January 2009 to September 2013, and since then has been seconded to Walgreens pursuant to a secondment agreement between Walgreens

 

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and an Alliance Boots affiliate. If the Step 2 Acquisition were consummated on March 9, 2015, it is estimated that the value of the portion of the Step 2 Acquisition consideration payable to Mr. Gourlay by reason of his interests in the MEP would be approximately $25 million based on the closing price of Walgreens common stock as reported on the NYSE on October 20, 2014 of $60.20 and an exchange rate of £1=$1.6165.

Currently, the SP Investors collectively own approximately 7.7% of the outstanding shares of Walgreens common stock and the KKR Investors collectively own approximately 0.7% of the outstanding shares of Walgreens common stock. While the final allocation between cash and shares to be received by each of the SP Investors, the KKR Investors, and the Other Investors has not yet been determined, the beneficial ownership of each of the SP Investors, the KKR Investors and the Other Investors is expected to significantly increase following completion of the Step 2 Acquisition. AB Acquisitions may not distribute any of the shares of Walgreens Boots Alliance (or Walgreens, as applicable) common stock it will receive on completion of the Step 2 Acquisition to its investors until the date that is nine months after the completion of the Step 2 Acquisition and, unless the SP Investors and the KKR Investors have elected to put certain guarantees in place, may not distribute more than 10% of such shares until the date that is twelve months after the completion of the Step 2 Acquisition. See “The Purchase and Option Agreement – Indemnification”. Accordingly, because the SP Investors and the KKR Investors control 100% of the voting stock of AB Acquisitions, until the date that AB Acquisitions distributes to its investors the shares of Walgreens Boots Alliance (or Walgreens, as applicable) to be received on the completion of the Step 2 Acquisition (referred to below as the “Distribution”), the SP Investors and the KKR Investors may control the voting power of all such shares. As of September 1, 2014, Mr. Murphy also owns directly 798 shares of Walgreens common stock and 3,906 deferred stock units in respect of 3,906 shares of Walgreens common stock, awarded to Mr. Murphy in his capacity as a member of the Board under the Walgreen Co. 2013 Omnibus Incentive Plan. The deferred stock units settle in cash in two installments, the first of which occurs within thirty days following his termination of service as a director and the second of which occurs one year after the first settlement date. The ownership of Walgreens Boots Alliance (or Walgreens, as applicable) common stock by each of the SP Investors and KKR Investors will remain subject to the terms of Shareholders Agreement. The Shareholders Agreement provides certain rights to the SP Investors and the KKR Investors including, among other things, that for so long as the SP Investors and the KKR Investors continue to meet certain beneficial ownership thresholds and subject to certain other conditions, the SP Investors and the KKR Investors, respectively, will each be entitled to designate one nominee to the Board for inclusion in the Board’s slate of directors. Mr. Pessina currently serves as the SP Investor Designee and Mr. Dominic Murphy currently serves as the KKR Investor Designee. See “Walgreens Shareholders Agreement.”

Neither Mr. Pessina nor Mr. Murphy voted with respect to any Board determinations and recommendations with respect to the Step 2 Acquisition, including the determination of the Board to exercise the Call Option.

Walgreens Executive Severance and Change in Control Plan.

None of the Share Issuance, Step 2 Acquisition or the Reorganization will constitute a change in control of Walgreens under the Walgreens Executive Severance and Change in Control Plan and, therefore, the consummation of the Transactions will not trigger any change in control related rights or benefits for the Walgreens executive officers under such plan.

Quantification of Potential Payments to Walgreens’ Named Executive Officers in Connection with the Step 2 Acquisition

The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosures of information about certain compensation for each of Walgreens’ named executive officers that is based on or otherwise relates to the Transactions and assumes, among other things, that all service-based and performance-based vesting conditions with respect to the special transition awards held by the named executive officers will be met. For additional details regarding the terms of the payments described below, see the description under the caption “—Special Transition Awards” above.

 

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Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date or dates, including that, for purposes of calculating such amounts, Walgreens has assumed (i) March 9, 2015 as the closing date of the Step 2 Acquisition and (ii) all service-based and performance-based vesting conditions with respect to the special transition awards held by the named executive officers will be met.

 

     Equity ($)(1)      Total ($)  

Named Executive Officers

     

Mark A. Wagner

     1,228,225         1,228,225   

Thomas J. Sabatino, Jr.

     1,228,225         1,228,225   

Timothy R. McLevish

     1,228,225         1,228,225   

 

(1) As described under the caption “—Special Transition Awards” above, Walgreens has granted special transition awards to certain of its named executive officers in the form of restricted stock units. In general, 40% of the restricted stock units subject to each award (the “first installment”) will vest on the closing date of the Step 2 Acquisition, subject to the executive officer’s continued employment with Walgreens through such date and 60% of the restricted stock units subject to each award (the “second installment”) will vest on the first anniversary of the closing date of the Step 2 Acquisition, subject to (a) the named executive officer’s continued employment with Walgreens through the date of such anniversary and (b) the attainment of a company performance goal in respect of the fiscal year ending August 31, 2015. The amounts above and in the table below assume a price per share of Walgreens common stock of $61.63, the average closing price of a share of Walgreens common stock over the first five business days following the first announcement of the exercise of the Call Option. Set forth below are the estimated values that each named executive officer would receive on settlement of the first installment and second installment of such named executive officer’s special transition award if all applicable service and performance-based vesting conditions are met.

 

    Special Transition Awards
(First Installment) ($)
    Special Transition Awards
(Second Installment) ($)
 

Named Executive Officers

   

Mark A. Wagner

    491,253        736,972   

Thomas J. Sabatino, Jr.

    491,253        736,972   

Timothy R. McLevish

    491,253        736,972   

Financing Matters

Walgreens’ obligation to complete the Step 2 Acquisition is not subject to the receipt of financing. We currently estimate that the total amount of funds required to pay the cash portion of the Step 2 Acquisition consideration, refinance substantially all of Alliance Boots’ total borrowings (based on total borrowings of Alliance Boots as of March 31, 2014 of £5.7 billion (equivalent to approximately $9.5 billion based on exchange rates as of March 31, 2014)), and pay related fees and expenses, will be approximately $[        ]. In addition, $750 million principal amount of Walgreens’ 1.000% notes due 2015 will mature on March 13, 2015. We currently expect to finance the Step 2 Acquisition cash consideration, the refinancing of substantially all of the borrowings of Alliance Boots and/or the repayment and/or refinancing of the 1.000% notes due 2015 with a combination of the issuance of new debt and available cash. While we have no present plans or intention to do so, it is possible that we will decide to issue common stock, securities convertible into common stock or other equity-linked securities, in a public or private offering to finance a portion of the Step 2 Acquisition consideration. Under NYSE and NASDAQ rules, any such issuance may be considered part of the Step 2 Acquisition for the purpose of the NYSE and NASDAQ shareholder approval requirement described in “The Walgreens Special Meeting—Voting Rights and Vote Required.” Your approval of the Share Issuance Proposal will constitute approval of the use of shares for such a financing.

 

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Rights of Walgreens’ Shareholders Dissenting from the Reorganization Merger Agreement and Reorganization

Walgreens shareholders who do not vote in favor of the Reorganization Proposal and who follow certain other procedures summarized below shall have the right to dissent from the Reorg Merger and obtain payment for their shares in the form of cash in the event of the completion of the Reorg Merger. The following is a summary of the provisions of the IBCA, which specify the procedures which must be followed by any shareholder who wishes to dissent and obtain payment for his or her shares in the event of the completion of the Reorg Merger. Such provisions of the IBCA are set forth in their entirety in Annex G hereto, and this summary is qualified by reference to those provisions. If you are considering exercising your dissenters’ rights, you should carefully review the following discussion and Annex G. Because of the complexity of the procedure established for exercising dissenters’ rights, Walgreens encourages you to consult an attorney before electing or attempting to exercise these rights.

Under the IBCA, all shareholders entitled to dissenters’ rights must be notified of that fact and the procedure to dissent in the meeting notice relating to the transaction with respect to which they are entitled to assert dissenters’ rights. This proxy statement/prospectus constitutes that notice. Because Walgreens has furnished to shareholders in this proxy statement/prospectus material information with respect to the Reorganization Merger Agreement and Reorganization, including the Reorg Merger, that will objectively enable a shareholder to evaluate the Reorganization Merger Agreement and Reorganization Proposal, to vote on the proposal and to determine whether or not to exercise dissenters’ rights, a shareholder may assert these rights only if (i) prior to the vote on the Reorganization Merger Agreement and the Reorganization, including the Reorg Merger, at the Special Meeting, the shareholder delivers to Walgreens a written demand for payment for his or her shares in the event the Reorg Merger is completed, and (ii) the shareholder does not vote in favor of the Reorganization Merger Agreement and Reorganization Proposal. If a shareholder votes in favor of the Reorganization Merger Agreement or the Reorganization Proposal, the shareholder will not be entitled to dissent and obtain payment for his or her shares, and a vote against the Reorganization Merger Agreement and Reorganization Proposal will not satisfy the above requirement that a written demand for payment be delivered to Walgreens. Failure to vote against the adoption of the Reorganization Merger Agreement and approval of the Reorg Merger will not waive a shareholder’s dissenters’ rights, provided that the shareholder has not voted in favor of the adoption of the Reorganization Merger Agreement and approval of the Reorg Merger and provided further that the shareholder has complied in all other respects with the IBCA in preserving the shareholder’s dissenters’ rights.

Within the later of (i) 10 days after the Reorganization is completed or (ii) 30 days after the shareholder delivers to Walgreens his or her written demand for payment, Walgreens will send to each shareholder delivering such a written demand (a “dissenting shareholder”) a statement setting forth Walgreens’ opinion as to the estimated fair value of such shareholder’s shares (a “statement of value”), Walgreens’ balance sheet as of the end of its fiscal year ended August 31, 2014, its income statement for its fiscal year ended August 31, 2014, and its latest interim financial statements, together with either a commitment to pay for the shares of the dissenting shareholder at the estimated fair value thereof upon transmittal to Walgreens of the certificate or certificates or other evidence of ownership with respect to such shares, or instructions to the dissenting shareholder to sell his or her shares within ten days after delivery of Walgreens’ statement to the shareholder. Walgreens may instruct the shareholder to sell only if there is a public market for the shares at which the shares may be readily sold. Since the shares of Walgreens’ common stock are traded on the NYSE and NASDAQ, Walgreens anticipates that there will be such a public market for the shares of Walgreens Boots Alliance’s common stock, which are expected to be listed on one or more U.S. national securities exchanges to be determined and publicly disclosed by Walgreens and Walgreens Boots Alliance prior to the closing of the Reorganization. If the dissenting shareholder does not sell his or her shares within such 10 day period after being so instructed by Walgreens, he or she shall be deemed to have sold these shares at the average closing price of such shares during such 10 day period.

A shareholder who makes such written demand for payment retains all other rights of a shareholder until those rights are cancelled or modified by the completion of the Reorg Merger. Upon completion of the

 

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Reorganization, Walgreens will pay each dissenting shareholder who transmits to the corporation the certificate or other evidence of ownership of the shares the amount Walgreens estimates to be the fair value of such shares, plus accrued interest, accompanied by a written explanation of how such interest was calculated.

If the dissenting shareholder does not agree with Walgreens’ opinion as to the estimated fair value of the shares or the amount of interest due and wishes to preserve dissenters’ rights, the dissenting shareholder shall, within 30 days from Walgreens’ delivery to the dissenting shareholder of the statement of value, notify Walgreens of the dissenting shareholder’s estimate of fair value and amount of interest due and demand payment for the difference between the dissenting shareholder’s estimate of fair value and interest due and the amount of the payment by Walgreens or the proceeds of sale by the dissenting shareholder, whichever amount is applicable.

If Walgreens and the dissenting shareholder are unable to agree on the fair value and interest due with respect to the shares within 60 days of delivery to Walgreens of the shareholder’s notice of estimated fair value and interest due, Walgreens shall either pay the difference in value demanded by the dissenting shareholder, with interest, or file a petition in the Circuit Court of Lake County, State of Illinois. Walgreens shall make all dissenters, whether or not residents of Illinois, whose demands remain unsettled, parties to the proceeding as an action against their shares, and shall serve all parties with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as required by law. If Walgreens does not commence such an action, dissenting shareholders can commence an action as otherwise permitted by law.

The jurisdiction of the court in which the proceeding is commenced under the foregoing paragraph by a corporation is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. “Fair value” means the proportionate interest of the shareholder in Walgreens, without discount for minority status or, absent extraordinary circumstance, lack of marketability, immediately before the Reorganization excluding any appreciation or depreciation in anticipation of the corporate action, unless exclusion would be inequitable.

Each dissenting shareholder made a party to the proceeding is entitled to judgment for the amount, if any, by which the court determines that the fair value of his or her shares, plus interest, exceeds the amount paid by Walgreens or the proceeds of sale by the shareholder, whichever amount is applicable.

The court, in such a proceeding, shall determine all costs of the proceeding, including the reasonable compensation and expenses of the appraisers, if any, appointed by the court, but shall exclude the fees and expenses of counsel and experts for the respective parties. If the fair value of the shares as determined by the court materially exceeds the amount which Walgreens estimated to be the fair value of the shares, or if no estimate was made, then all or any part of such expenses may be assessed against Walgreens. If the amount which any dissenting shareholder estimated to be the fair value of the shares materially exceeds the fair value of the shares as determined by the court, then all or any part of the costs may be assessed against that dissenting shareholder. The court may also assess the fees and expenses of counsel and experts for the respective parties in amounts the court finds equitable. Specifically, the court may assess fees and expenses of counsel and experts against the corporation and in favor of any or all dissenters, if the court finds that the corporation did not substantially comply with the requirements of the statute. Additionally, the court may assess fees and expenses of counsel and experts against either the corporation or a dissenter and in favor of any other party if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by the statute. If the court finds that the services of counsel for any dissenting shareholder were of substantial benefit to other dissenting shareholders similarly situated and that the fees for those services should not be assessed against Walgreens, the court may award reasonable fees to that counsel to be paid out of the amounts awarded to the benefited dissenting shareholders.

Walgreens shareholders do not have any rights to appraisal or to dissent with respect to the Share Issuance or the Step 2 Acquisition. Accordingly, if the Share Issuance and the Step 2 Acquisition are completed, but the Reorganization is not completed, no appraisal or dissenters rights will be available.

 

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MARKET PRICE AND DIVIDEND INFORMATION

On August 5, 2014, the last full trading day before the public announcement of the exercise of the Call Option, the high and low sales prices of Walgreens common stock as reported on the NYSE were $72.76 and $66.50, respectively. On [                    ], the last full trading day before the date of this document, the high and low sale prices of Walgreens common stock as reported on the NYSE were $[        ] and $[        ], respectively.

You are advised to obtain current market quotations for Walgreens common stock. The market price of Walgreens common stock will fluctuate between the date of this document and the completion of the Transactions. No assurance can be given concerning the market price of Walgreens common stock before the completion of the Transactions, or concerning the market price of Walgreens Boots Alliance following the completion of the Transactions.

Walgreens common stock is listed on the NYSE under the symbol “WAG.” The following tables set forth the high and low sales prices of Walgreens common stock as reported on the NYSE and the quarterly dividends declared per share during the periods indicated.

As of [            ], there were approximately [            ] holders of record of Walgreens common stock.

 

Period

   High      Low  
Annual (Fiscal Year) Price Data      

Fiscal 2015 (through October 20, 2014)

   $ 65.19       $ 58.39   

Fiscal 2014

   $ 76.39       $ 48.18   

Fiscal 2013

   $ 51.62       $ 31.88   

Fiscal 2012

   $ 37.61       $ 28.53   

Fiscal 2011

   $ 47.11       $ 27.05   

Fiscal 2010

   $ 40.69       $ 26.26   

Fiscal 2009

   $ 37.24       $ 21.28   
Quarterly Price Data for Fiscal Quarter Ended      

November 2014 (through October 20, 2014)

   $ 65.19       $ 58.39   

August 2014

   $ 76.39       $ 57.75   

May 2014

   $ 71.97       $ 62.80   

February 2014

   $ 69.84       $ 54.86   

November 2013

   $ 60.93       $ 48.18   

August 2013

   $ 51.62       $ 43.31   

May 2013

   $ 51.25       $ 39.74   

February 2013

   $ 42.00       $ 33.94   

November 2012

   $ 37.35       $ 31.88   

August 2012

   $ 36.85       $ 28.53   

May 2012

   $ 36.04       $ 30.34   

February 2012

   $ 35.35       $ 30.80   

November 2011

   $ 37.61       $ 30.34   

 

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Period

   Aggregate Dividends Declared
(per share)
 

Fiscal Year

  

Fiscal 2015 (through October 20, 2014)

   $ .3375   

Fiscal 2014

   $ 1.2825   

Fiscal 2013

   $ 1.14   

Fiscal 2012

   $ .95   

Fiscal 2011

   $ .75   

Fiscal 2010

   $ .589   

Fiscal 2009

   $ .477   

Fiscal Quarter Ended

  

November 2014

   $ .3375   

August 2014

   $ .3375   

May 2014

   $ .315   

February 2014

   $ .315   

November 2013

   $ .315   

August 2013

   $ .315   

May 2013

   $ .275   

February 2013

   $ .275   

November 2012

   $ .275   

August 2012

   $ .275   

May 2012

   $ .225   

February 2012

   $ .225   

November 2011

   $ .225   

Dividend Policy

It is intended that Walgreens Boots Alliance will pay dividends in a manner consistent with Walgreens’ historical practices. Delaware law permits a corporation to declare and pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. Within the general dividend policy, the Board will consider Walgreens Boots Alliance’s ability to declare and pay dividends in light of future operations and earnings, cash flows, capital expenditure requirements, general financial conditions, legal and contractual restrictions and other factors that it may deem relevant.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma consolidated financial statements and related notes present the historical consolidated balance sheet and statement of earnings of Walgreens adjusted to reflect the completion of the Reorg Merger, the anticipated acquisition of the remaining 55% of the issued and outstanding share capital of Alliance Boots, in exchange for £3.133 billion in cash and 144.3 million shares of Walgreens Boots Alliance, Inc.’s common stock (the “Second Step Transaction”) and certain related financing transactions (together with the Reorg Merger and the Second Step Transaction, referred to as the “Pro Forma Transaction”). The purchase consideration is subject to adjustment under certain circumstances. The pro forma adjustments related to the Pro Forma Transaction, reflect the impact of the following:

 

    the completion of the Reorg Merger;

 

    acquisition of the remaining 55% interest in Alliance Boots through the Second Step Transaction. The Company exercised the Alliance Boots Call Option on August 5, 2014;

 

    the elimination of the Company’s equity earnings in Alliance Boots, initial 45% equity method investment in Alliance Boots, and intercompany transactions;

 

    the impact of the preliminary purchase price allocation to the underlying assets and liabilities acquired;

 

    the impact of acquiring the remaining 27.5% effective interest in WBAD;

 

    the conversion of the Alliance Boots financial information from IFRS to generally accepted accounting principles in the United States (“US GAAP”) and the translation of British pounds sterling to US dollars; and

 

    the impact of $4 billion of anticipated debt borrowings to fund the cash portion of the Second Step Transaction and maintain working capital needs. The refinancing of the existing Alliance Boots debt is not considered for these statements.

The unaudited pro forma consolidated balance sheet gives effect to the Pro Forma Transaction as if it had occurred on August 31, 2014. Alliance Boots results are presented on a three-month lag. The unaudited pro forma consolidated statement of earnings for the year ended August 31, 2014 gives effect to the Pro Forma Transaction as if it had occurred on September 1, 2013, the first day of the Company’s 2014 fiscal year. Because the exchange ratio in the Reorg Merger is one Walgreens Boots Alliance share for each Walgreens share, the unaudited pro forma consolidated financial information presented below would be identical (but in respect of Walgreens rather than Walgreens Boots Alliance) if assuming for purposes of the data presented below the Second Step Transaction is completed but the Reorganization is not completed.

The unaudited pro forma consolidated financial information included herein was derived from the Company’s historical financial statements and those of Alliance Boots and is based on certain assumptions that we believe to be reasonable, which are described in the notes. We have not completed a final valuation analysis necessary to determine the fair values of all of Alliance Boots’ assets and liabilities. As described in the footnotes to the pro forma financial statements, the unaudited pro forma consolidated balance sheet includes a preliminary allocation of the purchase price to reflect the fair value of those assets and liabilities. Further, changes in certain variables between August 31, 2014, the date of the pro forma balance sheet, and the actual closing date of the Pro Forma Transaction, such as (a) the Company’s stock price as of October 20, 2014 (the last practicable date prior to the date of this document) of $60.20; (b) the British pound sterling to US dollar exchange rate as of October 20, 2014 of $1.62 to £1.00; or (c) the composition or value of the assets and liabilities acquired may have a material impact on the unaudited pro forma consolidated financial statements presented herein.

The Company’s fiscal year ends on August 31 and the Alliance Boots fiscal year ends on March 31. As the fiscal year-ends differ by more than 93 days, financial information for Alliance Boots for the year ended May 31, 2014 has been used in preparation of the unaudited pro forma consolidated financial statements and has been

 

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presented using a three-month lag. Also, the income statement and balance sheet from Galenica and WBAD have been excluded from the Alliance Boots financial information for the period presented.

The historical financial information of Alliance Boots was prepared in accordance with IFRS and prepared in British pounds sterling. The unaudited pro forma financial statements include adjustments to convert the financial statements of Alliance Boots from IFRS to US GAAP and to translate the British pounds sterling amounts into US dollars. Management of the Company has reclassified certain line items from the financial statements of Alliance Boots to conform to the presentation of the Company’s financial statements.

The unaudited pro forma consolidated financial statements reflect adjustments to give effect to pro forma events that are directly attributable to the Pro Forma Transaction, factually supportable, and with respect to the statement of earnings, are expected to have a continuing impact on the combined results. The unaudited pro forma consolidated financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma consolidated financial statements. In addition, the unaudited pro forma consolidated financial statements and notes thereto should be read in conjunction with (1) the Company’s audited consolidated financial statements for the year ended August 31, 2014, and the notes relating thereto, (2) “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended August 31, 2014 incorporated by reference into this proxy statement/prospectus, and (3) the audited consolidated financial statements of Alliance Boots for the years ended March 31, 2014, 2013 and 2012, and the notes relating thereto, contained in the Company’s Current Report on Form 8-K as filed with the Commission on May 15, 2014 and incorporated by reference into this proxy statement/prospectus.

The unaudited pro forma consolidated financial information is not intended to represent or be indicative of what the combined company’s financial position or results of operations actually would have been had the Pro Forma Transaction been completed as of the dates indicated. In addition, the unaudited pro forma consolidated financial information does not purport to project the future financial position or operating results of the combined company. The unaudited pro forma consolidated statement of earnings does not include the impacts of any revenue, cost or other operating synergies that may result from the acquisition of the remaining 55% interest in Alliance Boots or any related one-time Pro Forma Transaction costs related to the Second Step Transaction. The unaudited pro forma consolidated statement of earnings includes recognized synergy benefits achieved from the First Step Acquisition as recorded in each company’s financial results for the periods presented. One-time Pro Forma Transaction related costs of $29 million for financing, legal and other professional services were incurred through August 31, 2014 and additional costs are expected in fiscal 2015. The pro forma financial statements also do not reflect the potential refinancing of any of the existing Alliance Boots debt that Walgreens Boots Alliance will assume upon completion of the Second Step Transaction and the Reorg Merger. The average interest rate of Alliance Boots existing long-term debt is higher than Walgreens incremental borrowing rate, which is the primary factor in our consideration to refinance existing Alliance Boots debt.

 

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Walgreens Boots Alliance and Subsidiaries

Unaudited Pro Forma Consolidated Balance Sheet

As of August 31, 2014

(In US $ millions)

 

     Walgreen Co.     Alliance
Boots GmbH
(Note 3)
    Effects of the
Transaction
(Note 4)
          Effects of the
Anticipated
Debt Borrowings
(Note 4i)
     Pro Forma
Consolidated
 

Assets

             

Current Assets:

             

Cash and cash equivalents

   $ 2,646      $ 707      $ (5,075     (4a   $ 4,000       $ 2,278   

Accounts receivable, net

     3,218        4,156        (44     (4j     —           7,330   

Inventories

     6,076        3,180        52        (4g     —           9,305   
     —          —          (3     (4j     —        

Other current assets

     302        759        (32     (4g     —           1,084   
     —          —          55        (4j     —        
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Total Current Assets

     12,242        8,802        (5,047       4,000         19,997   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Non Current Assets:

             

Property and equipment, at cost, less accumulated depreciation and amortization

     12,257        3,773        (329     (4g     —           15,701   

Equity investment in Alliance Boots

     7,248        —          (7,248     (4d     —           —     

Goodwill

     2,359        —          13,588        (4h     —           15,947   
     —          7,812        (7,812     (4f     —        

Intangible assets, net

     1,180        8,491        1,563        (4g     —           11,234   

Other non-current assets

     1,896        1,176        79        (4g     —           3,151   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Total Non-Current Assets

     24,940        21,252        (159       —           46,033   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Total Assets

   $ 37,182      $ 30,054      $ (5,206     $ 4,000       $ 66,030   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Liabilities & Equity

             

Current Liabilities:

             

Short-term borrowings

   $ 774      $ 601      $ —          $ —         $ 1,375   

Trade accounts payable

     4,315        5,654        —            —           9,969   

Accrued expenses and other liabilities

     3,701        1,351        (1     (4j     —           5,089   
     —          —          38        (4k     —        

Income taxes

     105        153        —            —           258   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Total Current Liabilities

     8,895        7,759        37          —           16,691   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Non-Current Liabilities:

             

Long-term debt

     3,736        9,129        —            4,000         16,865   

Deferred income taxes

     1,048        1,320        247        (4g     —           2,615   

Other non-current liabilities

     2,942        704        —            —           3,646   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Total Non-Current Liabilities

     7,726        11,153        247          4,000         23,126   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Commitments and Contingencies

             

Equity:

             

Preferred stock

     —          —          —            —           —     

Common stock

     80        —          11        (4b     —           91   
     —          1,813        (1,813     (4e     —        

Paid-in capital

     1,172        —          8,678        (4b     —           6,512   
     —          —          (3,338     (4c     —        
     —          3,669        (3,669     (4e     —        

Employee stock loan receivable

     (5     —          —            —           (5

Retained earnings

     22,229        —          316        (4d     —           22,516   
     —          5,517        (5,517     (4e     —        
     —          —          9        (4j     —        
     —          —          (38     (4k     —        

Accumulated other comprehensive income/(loss)

     178        —          (84     (4d     —           94   
     —          (114     114        (4e     —        

Treasury stock, at cost

     (3,197     —          —            —           (3,197
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Total Shareholders Equity

     20,457        10,885        (5,331       —           26,011   

Noncontrolling interests

     104        257        (69     (4g     —           202   
     —          —          (90     (4c     —        
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Total Equity

     20,561        11,142        (5,490       —           26,213   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

Total Liabilities & Equity

   $ 37,182      $ 30,054      $ (5,206     $ 4,000       $ 66,030   
  

 

 

   

 

 

   

 

 

     

 

 

    

 

 

 

See accompanying notes to the unaudited pro forma consolidated financial statements.

 

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Walgreens Boots Alliance and Subsidiaries

Unaudited Pro Forma Consolidated Statement of Earnings

For the Year Ended August 31, 2014

(In US $ millions, except for per share data)

 

    Walgreen Co.     Alliance
Boots GmbH
(Note 3)
    Effects of the
Transaction
(Note 5)
          Effects of the
Anticipated
Debt Borrowings
(Note 5b)
    Pro Forma
Consolidated
 

Net sales

  $ 76,392      $ 37,260      $ (62     (5g   $ —        $ 113,590   

Cost of sales

    54,823        29,345        (69     (5g     —          84,099   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Gross Profit

    21,569        7,915        7          —          29,491   

Selling, general and administrative expenses

    17,992        6,255        94        (5c     —          24,310   
    —          —          (29     (5d     —       
    —          —          (2     (5g     —       

Equity earnings in Alliance Boots

    617        —          (617     (5a     —          —     
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Operating Income

    4,194        1,660        (673       —          5,181   

Interest expense, net

    156        473        (18     (5c     141        752   

Other (expense)/income

    (481     333        —            —          (148
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Earnings Before Income Tax Provision

    3,557        1,520        (655       (141     4,281   

Income tax provision

    1,526        22        (205     (5a     (52     1,322   
    —          —          (19     (5c     —       
    —          —          35        (5f     —       
    —          —          15        (5h     —       

Share of post-tax earnings from associates and joint ventures

    —          24        —            —          24   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Net Earnings

    2,031        1,522        (481       (89     2,983   

Net earnings attributable to noncontrolling interests

    99        73        (99     (5e     —          30   
        (43     (5i    
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Net earnings attributable to Walgreens/Walgreens Boots Alliance

  $ 1,932      $ 1,449      $ (339     $ (89   $ 2,953   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Net earnings per common share attributable to Walgreens/Walgreens Boots Alliance—basic

  $ 2.03            (5j     $ 2.69   

Net earnings per common share attributable to Walgreens/Walgreens Boots Alliance—diluted

  $ 2.00            (5j     $ 2.66   

Average shares outstanding

    953.1          144.3            1,097.4   

Dilutive effect of stock options

    12.1          —              12.1   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Average dilutive shares

    965.2        —          144.3          —          1,109.5   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

See accompanying notes to the unaudited pro forma consolidated financial statements.

 

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Notes to Unaudited Pro Forma Consolidated Financial Statements

(Amounts are Presented in US $ Millions, unless otherwise stated)

Note 1: Basis of preparation

The unaudited pro forma consolidated financial statements and related notes present the historical consolidated balance sheet and statement of earnings of the Company adjusted to reflect the Company’s exercise of the Call Option and subsequent deal closure to acquire the remaining 55% of the issued and outstanding share capital of Alliance Boots, in exchange for £3.133 billion in cash (approximately $5.1 billion at the October 20, 2014 spot rate of $1.62 to £1.00) and 144.3 million common shares with a value of $8.7 billion based on the October 20, 2014 (the last practicable date prior to the date of this document) closing price of $60.20. The unaudited pro forma consolidated financial statements also present the effects of the related financing transactions – an anticipated debt offering of $4.0 billion. Further, changes in certain variables between August 31, 2014, the date of the pro forma balance sheet, and the actual closing date of the Pro Forma Transaction may have a material impact on the unaudited pro forma consolidated financial statements presented herein. The pro forma financial statements also do not reflect the potential refinancing of any of the existing Alliance Boots debt that Walgreens Boots Alliance will assume upon completion of the Second Step Transaction and the Reorg Merger. The average interest rate of Alliance Boots long-term debt is higher than Walgreens incremental borrowing rate, which is the primary factor in our consideration to refinance existing Alliance Boots debt.

Galenica

The Alliance Boots investment in Galenica, Ltd., a Swiss healthcare group, is excluded from the Alliance Boots financial statements as this investment was held solely for the benefit of other Alliance Boots shareholders and was distributed to such other equity shareholders, other than the Company, in May 2013 and does not form a part of the Pro Forma Transaction.

Impact of Alliance Boots Acquisition

As part of the Pro Forma Transaction, Walgreens Boots Alliance and/or Walgreens will acquire the remaining 55% interest in Alliance Boots and increase its interest in WBAD to 100%. Currently, WBAD is a 50/50 joint venture between the Company and Alliance Boots. Because the Company owns a 50% direct interest and an additional indirect ownership interest through its 45% ownership of Alliance Boots, the financial results of WBAD are fully consolidated into the Company’s consolidated financial statements with the remaining 27.5% effective interest being recorded as noncontrolling interest. After the Pro Forma Transaction, Walgreens Boots Alliance and/or Walgreens will own the additional 27.5% effective interest in WBAD through its 100% ownership of Alliance Boots. The Alliance Boots statement of earnings and balance sheet are presented without WBAD.

Because the Company currently consolidates WBAD, the acquisition of the additional 27.5% effective interest is accounted for as an equity transaction. The difference between the consideration allocated to the acquired noncontrolling interest compared to the previous carrying value of the noncontrolling interest is recognized as an adjustment to paid-in capital.

The assets acquired and liabilities assumed of Alliance Boots are recognized at their fair values as if the acquisition occurred on August 31, 2014 with a three-month lag. Under ASC 805 Business Combinations, the previously held 45% equity ownership interest in Alliance Boots is remeasured at fair value and any difference between the fair value and the carrying value of the equity interest held is recognized as a gain or loss in the statement of earnings. The one-time gain or loss resulting from the Pro Forma Transaction has not been included in the unaudited pro forma statement of earnings as it will not have a continuing effect on Walgreens Boots Alliance, but will be recognized in Walgreens Boots Alliance’s financial statements on the acquisition date.

 

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Pending Transactions

The unaudited pro forma consolidated financial statements do not include any impact of Alliance Boots’ pending 12% investment in Nanjing Pharmaceutical Company Limited for $91 million (RMB560 million), the acquisition of Farmacias Ahumada in August 2014 for $607 million (£375 million) or the acquisition of the remaining 50% of the UniDrug Distribution Group in August 2014 for $107 million (£66 million). None of the transactions are considered significant to the unaudited pro forma financial statements.

Note 2: Significant Accounting Policies

The unaudited pro forma consolidated financial information has been compiled using the significant accounting policies as set forth in the Company’s audited consolidated financial statements for the year ended August 31, 2014. The accounting policies of Alliance Boots are similar in most material respects to those of the Company. Access to the information of Alliance Boots has been limited to the stated rights in the AB Shareholders’ Agreement. Upon completion of the acquisition, or as more information becomes available, the Company will complete a more detailed review of the Alliance Boots accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements. Adjustments were made to convert the financial statements of Alliance Boots from IFRS to US GAAP, as applied by the Company, and conform to the Company’s classification of certain assets and liabilities and translate the British pounds sterling amounts into US dollars, as set out further in Note 3. Apart from these adjustments, the Company is not aware of any differences that would have a material impact on the combined financial statements. For purposes of the unaudited pro forma consolidated financial information, adjustments arising as part of the acquisition and financing arrangements are described in Notes 4 and 5.

Note 3: IFRS to US GAAP Adjustments and Foreign Currency Translation

The historical financial information of Alliance Boots was prepared in accordance with IFRS and prepared in British pounds sterling. The Alliance Boots financial information reflected in the pro forma financial information has been adjusted for differences between IFRS and US GAAP and translated from the British pounds sterling amounts into US dollars. In addition, certain balances were reclassified from the Alliance Boots historical financial statements so that their presentation would be consistent with the Company.

The following table reflects the adjustments made to the Alliance Boots unaudited pro forma consolidated balance sheet as of May 31, 2014 to convert from IFRS to US GAAP and from British pounds sterling to US dollars using the spot rate of $1.68 to £1.00 as of May 31, 2014. WBAD is excluded from the Alliance Boots financial statements as the Company consolidates the joint venture.

 

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Unaudited Pro Forma Alliance Boots Balance Sheet presented in US GAAP as of May 31, 2014

 

In millions   Alliance Boots GmbH
IFRS
(GBP)
    IFRS to US GAAP
Adjustments
(GBP)
        Alliance Boots GmbH
US GAAP
(GBP)
    Alliance Boots GmbH
US GAAP
(USD)
 

Assets

         

Current Assets:

         

Cash and cash equivalents

  £ 421      £ —          £ 421      $ 707   

Accounts receivable, net

    2,474        —            2,474        4,156   

Inventories

    1,893        —            1,893        3,180   

Other current assets

    384        68      (3a1,2)     452        759   
 

 

 

   

 

 

     

 

 

   

 

 

 

Total Current Assets

    5,172        68          5,240        8,802   
 

 

 

   

 

 

     

 

 

   

 

 

 

Non Current Assets:

         

Property and equipment, at cost, less accumulated depreciation and amortization

    1,900        346      (3b1,2,6)     2,246        3,773   

Goodwill

    4,621        29      (3b6)     4,650        7,812   

Intangible assets, net

    5,311        (257   (3b1,6)     5,054        8,491   

Other non-current assets

    479        221      (3b3,4,5,6)     700        1,176   
 

 

 

   

 

 

     

 

 

   

 

 

 

Total Non-Current Assets

    12,311        339          12,650        21,252   
 

 

 

   

 

 

     

 

 

   

 

 

 

Total Assets

  £ 17,483      £ 407        £ 17,890      $ 30,054   
 

 

 

   

 

 

     

 

 

   

 

 

 

Liabilities & Equity

         

Current Liabilities:

         

Short-term borrowings

  £ 358      £ —          £ 358      $ 601   

Trade accounts payable

    3,366        —            3,366        5,654   

Accrued expenses and other liabilities

    851        (47   (3c1,2,3)     804        1,351   

Income taxes

    102        (11   (3c3)     91        153   
 

 

 

   

 

 

     

 

 

   

 

 

 

Total Current Liabilities

    4,677        (58       4,619        7,759   
 

 

 

   

 

 

     

 

 

   

 

 

 

Non-Current Liabilities:

         

Long-term debt

    5,409        25      (3d2)     5,434        9,129   

Deferred income taxes

    770        16      (3d4)     786        1,320   

Other non-current liabilities

    376        43      (3d1,3,4)     419        704   
 

 

 

   

 

 

     

 

 

   

 

 

 

Total Non-Current Liabilities

    6,555        84          6,639        11,153   
 

 

 

   

 

 

     

 

 

   

 

 

 

Commitments and Contingencies

         

Equity:

         

Common stock

    1,079        —            1,079        1,813   

Paid-in capital

    2,184        —            2,184        3,669   

Retained earnings

    2,917        367          3,284        5,517   

Accumulated other comprehensive income/(loss)

    34        (102       (68     (114
 

 

 

   

 

 

     

 

 

   

 

 

 

Total Shareholders Equity

    6,214        265          6,479        10,885   

Noncontrolling interests

    37        116      (3e1,2,3)     153        257   
 

 

 

   

 

 

     

 

 

   

 

 

 

Total Equity

    6,251        381          6,632        11,142   
 

 

 

   

 

 

     

 

 

   

 

 

 

Total Liabilities & Equity

  £ 17,483      £ 407        £ 17,890      $ 30,054   
 

 

 

   

 

 

     

 

 

   

 

 

 

 

Adjustments

 

(a) The adjustments to current assets consist of the following:

 

  (1) Reclassification of available for sale securities of £67 million from other non-current assets in IFRS, to other current assets under US GAAP.

 

  (2) All other adjustments increase other current assets by £1 million.

 

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(b) The adjustments to non-current assets consist of the following:

 

  (1) Reclassification of computer software assets of £254 million from intangible assets under IFRS, to property and equipment under US GAAP.

 

  (2) Leases of £81 million classified as operating leases under IFRS, which are classified as capital leases under US GAAP.

 

  (3) The AmerisourceBergen warrants are accreted to fair market value over the period ending at the end of the exercise date under IFRS, which are recorded at fair value at each period under US GAAP resulting in a £262 million adjustment in other non-current assets.

 

  (4) Available for sale securities of £67 million are reclassified from other non-current assets in IFRS, to other current assets under US GAAP.

 

  (5) Deferred financing costs of £25 million recorded as an offset to borrowings under IFRS, whereas the amounts are recorded as a non-current asset under US GAAP. Also, £17 million of deferred financing costs were amortized over a shorter life under IFRS than under US GAAP.

 

  (6) All other adjustments include an increase of property and equipment of £11 million, an increase of goodwill of £29 million, a decrease of intangible assets of £3 million and a decrease of other non-current assets of £18 million.

 

(c) The adjustments to current liabilities consist of the following:

 

  (1) Recognition of £5 million in lease obligations for leases classified as operating leases under IFRS, which are classified as capital leases under US GAAP.

 

  (2) The customer loyalty program is accounted for as deferred revenue under IFRS and the Company accounts for it under the incremental cost method under US GAAP, which reduced the deferred revenue liability by £64 million.

 

  (3) All other adjustments include an increase of accrued expenses and other liabilities of £12 million and a decrease of income taxes of £11 million.

 

(d) The adjustments to non-current liabilities consist of the following:

 

  (1) Recognition of £80 million in lease obligations for leases classified as operating under IFRS, which are classified as capital under US GAAP.

 

  (2) Reversal of £25 million in deferred financing costs netted against related borrowings under IFRS, which are recorded as an asset under US GAAP.

 

  (3) Derecognition of £74 million of future dividend liability to noncontrolling interests which do not meet the definition of a liability under US GAAP.

 

  (4) All other adjustments include an increase in deferred income taxes of £16 million and increases of other non-current liabilities of £37 million.

 

(e) The adjustments to noncontrolling interests consist of the following:

 

  (1) Reversal of £78 million of current and long-term dividend obligations to noncontrolling interests which do not meet the definition of a liability under US GAAP.

 

  (2) Noncontrolling interests increased by £32 million mainly related to purchase accounting adjustments measuring the noncontrolling interests in a partial acquisition based on the fair value of identifiable net assets acquired under IFRS compared to fair value under US GAAP.

 

  (3) All other adjustments increase noncontrolling interests by £6 million.

 

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Unaudited Pro Forma Alliance Boots Statement of Earnings presented in US GAAP for the Year Ended May 31, 2014

The following table reflects the adjustments made to the Alliance Boots unaudited pro forma consolidated statement of earnings for the year ended May 31, 2014 to convert from IFRS to US GAAP and from British pounds sterling to US dollars using a historical average exchange rate of $1.61 to £1.00. Financial information for Alliance Boots for the year ended May 31, 2014 has been used in preparation of the unaudited pro forma consolidated financial statements and has been presented using a three-month lag. The balances of Alliance Boots, set out below, exclude Galenica and related amounts which were excluded from the First Step Acquisition. Also, WBAD equity earnings were excluded as the Company consolidates the joint venture.

 

In millions    Alliance Boots GmbH
IFRS
(GBP)
     IFRS to US GAAP
Adjustments
(GBP)
        Alliance Boots GmbH
US GAAP
(GBP)
     Alliance Boots GmbH
US GAAP
(USD)
 

Net sales

   £ 23,168       £ (102   (3a)   £ 23,066       $ 37,260   

Cost of sales

     18,268         (100   (3b)     18,168         29,345   
  

 

 

    

 

 

     

 

 

    

 

 

 

Gross Profit

     4,900         (2       4,898         7,915   

Selling, general and administrative expenses

     3,785         87      (3c)     3,872         6,255   
  

 

 

    

 

 

     

 

 

    

 

 

 

Operating Income

     1,115         (89       1,026         1,660   

Interest expense, net

     313         (19   (3d)     294         473   

Other income

     —           205      (3e)     205         333   
  

 

 

    

 

 

     

 

 

    

 

 

 

Earnings Before Income Tax Provision

     802         135          937         1,520   

Income tax provision

     2         5      (3f)     7         22   

Share of post-tax earnings from associates and joint ventures

     15         —            15         24   
  

 

 

    

 

 

     

 

 

    

 

 

 

Profit for the period

     815         130          945         1,522   

Profit attributable to noncontrolling interests

     33         12      (3g)     45         73   
  

 

 

    

 

 

     

 

 

    

 

 

 

Profit attributable to Alliance Boots

   £ 782       £ 118        £ 900       $ 1,449   
  

 

 

    

 

 

     

 

 

    

 

 

 

 

Adjustments

 

(a) The adjustments to net sales consist of the following:

 

    Reclassification of £104 million of net sales under IFRS to a reduction of cost of sales under US GAAP related to recognized First Step Acquisition synergy benefits recorded during the year ended May 31, 2014.

 

    All other adjustments increased revenue by £2 million.

 

(b) The adjustments to cost of sales consist of the following:

 

    Reclassification of £104 million of net sales under IFRS to a reduction of cost of sales under US GAAP related to recognized First Step Acquisition synergy benefits recorded during the year ended May 31, 2014.

 

    All other adjustments increased cost of sales by £4 million.

 

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(c) The adjustments to selling, general and administrative (“SG&A”) expenses consist of the following:

 

    Actuarial pension valuations were performed under IFRS and US GAAP for all material Alliance Boots pension plans resulting in £62 million of additional pension expense due to various differences in pension accounting standards.

 

    Income related to AmerisourceBergen warrants is accreted to fair market value over the period ending at the end of the exercise date under IFRS, which is adjusted to fair market value each period under US GAAP. £18 million was recorded as a reduction in SG&A expenses under IFRS and reclassified to other income for US GAAP.

 

    All other adjustments increased SG&A expenses £7 million.

 

(d) The adjustments to interest expense, net, consist of the following:

 

    Reclassification of pension expenses of £10 million recorded in net interest costs in IFRS, which are recorded in SG&A in US GAAP.

 

    Reclassification of £9 million of interest expense to noncontrolling interests related to future dividend liabilities and put option obligations recorded under IFRS, which do not meet the definition of a liability under US GAAP.

 

(e) The adjustments to other income consist of the following:

 

    Income related to the AmerisourceBergen warrants of £205 million held by Alliance Boots is accreted to fair market value and recorded in SG&A under IFRS, which is adjusted to fair market value each period end and recorded in other income under US GAAP.

 

(f) The adjustments to income tax provision consist of the following:

 

    Derecognition of a £13 million tax benefit under IFRS related to a deferred tax asset for previously acquired goodwill amortization, which is not recognized under US GAAP.

 

    All other adjustments decreased the income tax provision by £18 million related to the tax impact of the pre-tax IFRS to US GAAP adjustments based on local statutory tax rates.

 

(g) The adjustments to profit attributable to noncontrolling interests consist of the following:

 

    Reclassification of £9 million of interest expense to noncontrolling interests related to future dividend liabilities and put option obligations recorded under IFRS, which do not meet the definition of a liability under US GAAP.

 

    All other adjustments decrease the profit attributable to noncontrolling interests by £3 million related to the noncontrolling interests on the IFRS to US GAAP adjustments based on the noncontrolling interest ownership.

 

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Note 4: Unaudited Pro Forma Consolidated Balance Sheet Adjustments

Estimated purchase consideration and the fair value of the Company’s previously held equity interest in Alliance Boots as compared to the fair value of net identifiable assets and liabilities acquired is as follows (in millions):

 

     Amount     Footnote  

Calculation of consideration

    

Plus: Cash paid to shareholders of Alliance Boots

   $ 5,075        (4a

Plus: Fair value of common stock issued

     8,689        (4b
  

 

 

   

Subtotal—fair value of total consideration transferred

     13,764     

Less: Consideration attributed to WBAD noncontrolling interest

     (3,428     (4c
  

 

 

   

Subtotal—consideration

   $ 10,336     

Fair value of previously held equity interest

    

Plus: Fair value of 45% of equity interest already held by the Company

   $ 7,480        (4d

Recognized amounts of identifiable assets acquired and liabilities assumed

    

Plus: Book value of Alliance Boots’ net assets excluding WBAD equity investment

   $ 10,885        (4e

Less: Historical Alliance Boots goodwill

     (7,812     (4f
  

 

 

   

Subtotal—net assets to be acquired

   $ 3,073     

Fair value adjustments of net assets and noncontrolling interest acquired

   $ 1,155        (4g
  

 

 

   

Goodwill recognized

   $ 13,588        (4h
  

 

 

   

 

(a) Represents the cash portion of consideration transferred upon deal closure (£3.133 billion) using an exchange rate of $1.62 to £1.00, which represents the spot rate on October 20, 2014, the last practicable date prior to the date of this document.

The cash portion of consideration transferred is subject to change due to fluctuations in exchange rates, and the US dollar equivalent could differ materially from $5.1 billion set forth above. Holding all other variables constant, a 10% increase or decrease in exchange rates compared to the exchange rate of $1.62 to £1.00 would increase or decrease the total consideration by $508 million. The cash portion of the consideration transferred will be calculated on the closing date of the acquisition.

 

(b) Represents the fair value of 144.3 million newly issued common shares transferred upon deal closure. The Company stock price utilized in the calculation of the equity portion of consideration transferred was $60.20 per share on October 20, 2014 (the last practicable date prior to the date of this document). The issuance of common stock increased common stock and paid-in capital by $11 million and $8.7 billion, respectively.

The equity portion of consideration transferred is subject to change due to fluctuations in the Company’s and/or Walgreens Boots Alliance’s share price and could differ materially from $60.20 per share set forth above. Holding all other variables constant, a 10% increase or decrease in the Company’s share price compared to the price set forth above would increase or decrease the total consideration by $869 million. The equity portion of the consideration transferred will be calculated on the closing date of the acquisition. We believe a 10% change in the exchange rates used and the Company’s stock price are reasonably possible during the period between the date of this document and the expected closing date of the Pro Forma Transaction.

 

(c) The acquisition of the remaining 27.5% effective interest in WBAD was excluded from the preliminary purchase price allocation as the Company consolidates the joint venture. As a result of the Pro Forma Transaction, the Company will own 100% of WBAD through its 100% ownership of Alliance Boots. A noncontrolling interest acquired as part of a controlling interest acquisition is accounted for as an equity transaction with no gain or loss recorded in the statement of earnings under ASC 805 Business Combinations.

 

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Table of Contents
(in millions)    Amount     Footnote  

Impact of equity transaction

    

Consideration attributable to WBAD

   $ 3,428        i.   

Less: Carrying value of the Company’s preexisting NCI

     (90     ii.   
  

 

 

   

  Impact to additional paid-in-capital

   $ 3,338        iii.   

 

  i. The consideration attributed to the acquisition of the remaining 27.5% effective interest of WBAD was determined based on the relative fair value of Alliance Boots and the fair value of WBAD.

 

  ii. The carrying value of the Company’s preexisting noncontrolling interest in WBAD as of August 31, 2014.

 

  iii. The difference between the consideration transferred and the preexisting carrying value of noncontrolling interest, is reflected as an adjustment to additional paid-in capital in the pro forma financial statements.

 

(d) A step acquisition occurs when a controlling ownership interest is gained over a period of time. Under ASC 805 Business Combinations, a step acquisition in which control is obtained over a business is accounted for as a business combination. The accounting guidance also requires that previously held equity interests be remeasured at fair value and any difference between the fair value and the carrying value of the previously held equity interest be recognized as a gain or loss on the statement of earnings.

 

(in millions)    Amount     Footnote