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Walgreens to invest $ 5.2 billion in VillageMD

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Alliance of Walgreens boots Inc.

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will pay $ 5.2 billion to acquire a controlling stake in the VillageMD primary care network as the drugstore chain seeks to transform into a healthcare provider.

VillageMD operates over 200 clinics where it has acquired or hired its own doctors and medical staff. Walgreens said the investment would allow it to open medical practices in 600 or more of its pharmacies by 2025, and 400 more by 2027.

The pharmaceutical company already owns a stake in VillageMD after agreeing last summer to pay $ 1 billion in equity and three-year debt in exchange for a 30% stake in the Chicago-based startup. As part of the deal announced Thursday, Walgreens will own a 63% stake in VillageMD.

The deal is the first major strategic move from Walgreens chief executive Rosalind Brewer, who joined the company from Starbucks in January. Shortly before his arrival, Walgreens made a deal to sell their drugstore wholesale unit to AmerisourceBergen Corp.

for $ 6.5 billion and indicated it could use the proceeds to deepen healthcare.

“One of the main reasons we started this partnership is because it focuses on all patient populations,” Brewer said Thursday, adding that the chain serves patients insured by private and government plans and those without insurance. “For us to be able to better care for them beyond the pharmacy, our ability to provide care through assets held and partners is essential. “

Walgreens said VillageMD is planning an initial public offering in 2022. It will remain a stand-alone company with its own board of directors and management.

Walgreens and its rival CVS Health Corp.

are in a race to become referral treatment centers, especially for patients with expensive and difficult-to-manage chronic conditions. They are also looking to go beyond retail to provide more health services, such as mental health counseling and chronic care.

Both chains are looking for new ways to counter the lower revenues from prescription drugs, which generate the bulk of their sales. They are also fighting against Amazon.com Inc.,

which took shoppers away from physical stores and launched an online pharmacy.

Also Thursday, Walgreens announced it would acquire a controlling stake in CareCentrix Holdings Inc., a home health benefits manager based in Hartford, Connecticut. Walgreens said it derives 85% of its revenue from some 35 million customers with chronic conditions such as diabetes or heart disease.

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Ms Brewer said CareCentrix and the increased stake in VillageMD would help the company manage rising costs for high-risk patients. “These are the same patients who frequently visit our stores and meet with our pharmacists,” she said.

The chain will create a business segment, to be called Walgreens Health, and invest in making dispensing cheaper and easier. Among the plans: use a strategy called microfulfillment – increasingly popular in the retail sector – at its pharmacy business. The model seeks to accelerate the delivery of goods to consumers by supplementing sprawling, centralized distribution centers with smaller, more abundant operations.

As the FDA prepares to make a decision on whether to authorize Pfizer’s Covid-19 vaccine for children ages 5 to 11, public health officials and pediatricians share their research with families to assure parents hesitant about the safety of the vaccine. Photo: John Locher / Associated Press

Walgreens has two micro-fulfillment centers in the Dallas and Phoenix areas serving more than 1,000 of its approximately 9,000 locations. It plans to add nine more by the end of next year, to serve 3,900 stores; and 22 additional locations serving 8,500 stores by 2024. The company said the centers will reduce working capital costs by $ 1.1 billion by 2025.

For the last quarter, Walgreens reported increased revenue from administration of Covid-19 vaccines and testing. The company said it provided 13.5 million vaccines in the three months ended Aug.31 and more than 40 million since the start of the pandemic.

The company posted revenue of $ 34.26 billion for the fiscal fourth quarter, up from $ 30.37 billion for the same period last year and beating Wall Street estimates. Profit reached $ 627 million from $ 373 million for the comparable period last year.

Write to Sharon Terlep at sharon.terlep@wsj.com

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