AmerisourceBergen's CEO Hosts Strategic, Long-Term Relationship with Walgreens and Alliance Boots Conference (Transcript)

AmerisourceBergen Corporation (NYSE:ABC)

Strategic, Long-Term Relationship with Walgreens and Alliance Boots Conference

March 19, 2013 7:30 am ET

Executives

Barbara A. Brungess - Vice President of Corporate & Investor Relations

Steven H. Collis - Chief Executive Officer, President, Director and Chairman of Executive Committee

Tim G. Guttman - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

Michael Cherny - ISI Group Inc., Research Division

Lisa C. Gill - JP Morgan Chase & Co, Research Division

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Zachary William Sopcak - Morgan Stanley, Research Division

Eric Bosshard - Cleveland Research Company

Steven Valiquette - UBS Investment Bank, Research Division

George Hill - Citigroup Inc, Research Division

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the AmerisourceBergen conference call. [Operator Instructions] I would now like to turn the conference over to our host, Barbara Brungess. Please go ahead.

Barbara A. Brungess

Thank you, Robert. Good morning, everyone, and welcome to this morning's call. I am Barbara Brungess, Vice President of Corporate and Investor Relations, and joining me today are Steven Collis, AmerisourceBergen President and CEO; and Tim Guttman, Senior Vice President and CFO. We also have 2 special guests with us this morning, Gregory Wasson, President and Chief Executive Officer of Walgreen Co.; and Stefano Pessina, Executive Chairman of Alliance Boots.

During the conference call today, we will make some forward-looking statements about our business prospects and financial expectations. We remind you that there are many risk factors that could cause our actual results to differ materially from our current expectations. For a discussion of some key risk factors, we refer you to our SEC filings, including our 10-K report for fiscal 2012 and the cautionary note regarding forward-looking statements from this morning's press release.

Also, AmerisourceBergen assumes no obligation to update the matters discussed in this conference call, and this call cannot be rebroadcast without the expressed permission of the company. As always, those connected by telephone will have an opportunity to ask questions after our opening remarks.

Now here is Steve Collis to begin our comments.

Steven H. Collis

Thank you, Barbara, and thank you, everyone, for joining us on this early morning call. I am very excited to speak to you this morning about our new, strategic, long-term relationship with 2 of the world's leading health care companies, Walgreens and Alliance Boots. We have before us an extraordinary opportunity to leverage global supply chain efficiencies and best practices with the largest pharmacy retailer in the U.S. and the leading international pharmacy-led health and beauty group.

As Barbara mentioned, we are pleased to welcome both Greg and Stefano with us here this morning to briefly share their thoughts on our new partnership and our collective efforts to improve patient access to pharmaceuticals while increasing the efficiency of the health care system.

I'm sure that most of you have read our respective press releases issued this morning, so I will just briefly recap the details of what we are announcing today and the benefits we see for AmerisourceBergen. First, we have signed an unprecedented 10-year comprehensive primary pharmaceutical distribution agreement with Walgreens, which includes not only branded products but also includes generics and specialty drugs for Walgreens' retail stores, mail order and specialty pharmacies.

The contract is effective September 1, 2013, and while the initial phase will include products that Walgreens has historically sourced from distributors and suppliers, over time, AmerisourceBergen will assume the distribution of the products that Walgreens has historically self-distributed.

We have had a working relationship with Walgreens for over a decade, and this new contract greatly expands upon that partnership and will yield $28 billion in incremental revenues for AmerisourceBergen in the first year alone.

Second, AmerisourceBergen will have access to generics and related pharmaceutical products sourced through the Walgreens-Alliance Boots development joint venture. This relationship will approve -- will improve AmerisourceBergen's access to globally sourced products while further enhancing the safety and integrity of the supply channel. It is important to note that over time, AmerisourceBergen will be able to source products through the JV, not just for the Walgreens stores but for all our entire customer base.

Third, AmerisourceBergen has agreed to work collaboratively to share best practices and to work cooperatively with both Walgreens and Alliance Boots to expand our manufacturer services businesses by providing manufacturers with integrated solutions for clinical trial logistics, global third-party logistics and product support services by leveraging AmerisourceBergen's market-leading World Courier and Consulting Services businesses.

Alliance Boots' increasing activity with European biotech manufacturers and AmerisourceBergen's expertise in commercialization and patient support services offer manufacturers additional opportunities to expand patient access to biotech products in Europe and beyond.

Finally, in consideration of the value creation inherent in this new relationship and in an effort to ensure long-term interests are aligned, Walgreens and Alliance Boots have the right to purchase a minority equity position in AmerisourceBergen over the next 4 years. The details are outlined in the press release, but I would like to highlight that the warrant strike prices were established to provide a specific amount of value and should not be interpreted as an indicator of where we expect our stock price to be in 2016 and 2017. Again, we expect significant earnings accretion and other benefits to accrue to AmerisourceBergen as a result of this transaction, and we are very pleased to have our partners share in our future success.

Tim will detail the expected financial benefits of these agreements, but I want to highlight a few key areas. As you know, over the last several years, AmerisourceBergen has made significant investments in the implementation of a new ERP system, and we have continuously upgraded our distribution center network. In addition, we have made investments through acquisitions to expand our service offering to manufacturers and to enter international markets with premium logistic services. These investments, combined with the changing health care landscape and the ability to collaborate with Walgreens and Alliance Boots, has provided us with a tremendous opportunity to unlock further value in the pharmaceutical supply chain.

In order to generate the degree of value creation we anticipate from this new relationship with Walgreens and Alliance Boots, we would typically have to make a substantial outlay of capital and bear the risks of venturing into a new line of business or adjacency. In our case, however, we are generating significant revenue and earnings accretion over the long term by way of continuing to focus on our core competencies and expanding our existing line of businesses where we have already had a great deal of success.

Over the years, we have demonstrated that bringing additional volume into our system makes us more efficient, and that is as true today as it has ever been. In addition, we fully expect that this expansion of our business will be beneficial for all of AmerisourceBergen's customers, as we will have unparalleled access to globally sourced products and unmatched exposure to world-class programs and best practices for retail pharmacy and beyond.

Opportunities as compelling as these are rare, and we believe that the value generated over time will enable us to meet our mid-teens long-term growth objective, even with the expected dilution from the equity warrants.

It is also unique in my experience that we find such a comfortable fit among 3 leading companies operating on a global scale. Our teams have worked exceptionally well to complete this groundbreaking deal, and we are excited about the collective opportunities in front of us. Working with Walgreens and Alliance Boots in partnership gives us the added benefit of exploring best practices on a global scale and helps to accelerate our strategic objective of expanding our manufacturer services businesses into international markets.

Most importantly, this new relationship strengthens our ability to deliver sustainable, long-term growth for all of our stakeholders. And indeed, Stefano, Greg and I have, from the beginning, shared a vision for the essential role pharmacy can play in the health delivery system, especially when partnered with an innovative and efficient supply chain that can enhance and preserve that role. This chemistry and common purpose has only been strengthened by working on this relationship announced today.

I'd now like to ask Greg and Stefano to share their thoughts.

Gregory D. Wasson

Thank you, Steve, and good morning, everyone. Today's announcement advances our objective to create an unprecedented global pharmacy-led health and well-being network.

The first step took place last summer when we jointly announced our strategic partnership with Alliance Boots, the leading international drug retail and wholesale group. As we said at the time, we are bringing together 2 of the world's most iconic brands to completely change the drug and health care distribution system globally.

The next step was to innovate our supply chain by utilizing the expertise of our Alliance Boots partners and, with today's announcement, joining with the U.S. wholesaler who we felt was best positioned to meet our future growth needs. The strategic long-term relationship we're announcing today achieves this next step and brings together 3 of the world's premier players in the pharmacy and health care distribution industry to create and deliver new and innovative solutions to the world's rapidly changing health care environment.

We believe that combining the best practices of AmerisourceBergen and Alliance Boots with Walgreens' best-in-class retail distribution network in the U.S. and Alliance Boots' best-in-class retail distribution network in Europe will add value for all stakeholders. We will create an innovative and unique supply chain unmatched in the world. It will provide new solutions for patients, payers, manufacturers, community pharmacies and customers for all 3 companies. It is intended to create long-term sustainable shareholder value for all 3 companies, and it will create tremendous opportunities for all of our employees.

This agreement also creates aligned incentives among our 3 companies: Walgreens obtains a long-term 10-year contract with AmerisourceBergen to innovate our supply chain distribution of branded and generic drugs; AmerisourceBergen gains access to the Walgreens-Alliance Boots joint venture; and Walgreens and Alliance Boots will have a minority ownership position in AmerisourceBergen.

Now let me wrap up by addressing 2 key questions. One, why now? There are 3 main reasons: first, the Walgreens supply chain contract was up for renewal, which gave us an opportunity to look at our strategic options for our supply chain; second, Walgreens and Alliance Boots were ready to take another step forward in our partnership to create the first global pharmacy-led health and well-being network, a relationship that's now firmly in place, and we're already realizing benefits from our joint venture; and third, U.S. and European health care stakeholders are both looking for new solutions in making health care delivery more efficient and effective.

The second question is why AmerisourceBergen? And there are also 3 reasons: first, we believe AmerisourceBergen is the most strategically aligned U.S. wholesaler to meet our needs, and we're pleased to expand our existing relationship with them; second, AmerisourceBergen has a complementary overlap with Alliance Boots and Walgreens. Their leadership in distributing specialty drugs and as a wholesaler to health systems, physicians and independent pharmacy dovetails perfectly with our aligned goal to transform the role of a community pharmacy by providing these services; third, Walgreens, Alliance Boots and AmerisourceBergen have a strong cultural fit, and our management teams are also strongly aligned.

With that, let me add a note of thanks and appreciation for Cardinal for their service on behalf of Walgreens. We're grateful for the good and successful relationship we've had for many years, and I want to personally thank George Barrett and his team for their support.

To sum up today's announcement is about 3 great companies working closely together to improve the delivery of medications where, when and how they're needed and with greater efficiency. So Walgreens is excited by this new joint endeavor and the opportunities we create -- we're creating today.

Over many years, I've been fortunate to get to know Steve and his team. They're a highly talented, experienced and proven group of executives. I'm delighted to have the chance to work with them in the months and the years ahead.

Now let me hand off to my friend and partner, Stefano.

Stefano Pessina

Thank you, Greg. Today is a really exciting day for all of our companies. You have already heard from both Steve and Greg about the great opportunity and benefits that this new partnership will generate, above and beyond the benefit that Walgreens and Alliance Boots gained from coming together.

Of course, the partnership that we are announcing today is different in nature and in structure from the one we announced last year with Walgreens. But as Greg said, it is built on a shared vision and cultural fit.

The health care sector is very much a community. Even if many people around the world are involved in it, it is still a community within which relationships are built over years based on trust and respect forged through time. It is a community that I have been part of over 35 years, and I am delighted to say that I have known both Steve and Greg for a number of years. The conditions that have made this partnership with AmerisourceBergen the right deal at the right time with the right partners are not just the development of our familiarity, trust and respect. Familiarity facilitated that dialogue, and we identified a truly common vision for the development of our industry and for how, working together, we can each better achieve this common vision.

Our companies share a desire to anticipate and embrace change and the consistency of vision about what benefits change can bring. There is no doubt that our sector is changing fast. And all over the world, to survive and, more importantly, to prosper, our companies need to evolve.

We could spend much time discussing synergies and speculating over the potential for the expansion of this or that part of our business, which are all important aspects, but let me tell you, first of all, let's not lose sight that what we are doing here is new. And in this market at this time, it is truly innovative.

New challenges demand new solutions, and this is what we are doing here. To get here today, we collectively took a first step many months ago from our individual perspective towards a common vision, with the recognition that working together, we could generate a much wider set of opportunities than we could ever do on our own.

What has emerged today is another innovative partnership, another first for the market. This new partnership has the capacity to change the dynamic of the U.S. health care market and the way the supply chain works with both manufacturer and the pharmacy community to the mutual benefit of the industry and the customers it serves.

Alliance Boots has demonstrated in Europe their undeniable benefits of having pharmacies work in close alignment with pharmaceutical wholesaling. We have also shown that we can work equally closely with drugstore chains as well as with community pharmacies. We have been able to develop innovative services that support and benefit pharmacies in all its forms. This is why we describe ourselves as a pharmacy-led group.

Together with AmerisourceBergen, Walgreens and Alliance Boots are committed to exploring every avenue and opportunity to further evolve our businesses as examples of excellence in their relevant market areas. To seek out the new opportunities, to innovate and grow, we have no doubt that this is the way to continue sustainable growth for our companies.

This is a further step along a road that we have been following for some time now. And having a new partner join us on this road brings a new view and a new portfolio of opportunities, which is a strong positive. As I often say, the similarities bring synergies and the differences spark innovation and opportunity.

It is also attributed to the strength of the partnership and collaboration between Walgreens and Alliance Boots and the commonality of purpose with AmerisourceBergen that we can bring together our interest in these different ways.

At Alliance Boots, our group is very different today to what it was 10 years ago, but I am certain that it is stronger, braver and better. Our performance proves it. Joining with Walgreens is bringing about the changes and opportunities that we could never have imagined. Working with AmerisourceBergen will bring even more change, and the one thing I can guarantee you is that our businesses will all be very different and better in 10 years' time as a result of what we are announcing here today.

Some will inevitably see embracing change as a risk to our businesses. But as someone who has embraced a fair amount of change over the last 30 years, I believe it is our ability and willingness to change that will keep our businesses fresh and relevant and, most of all, ahead of our competitors and the markets.

Thank you. On that note, I will hand you back to Steve.

Steven H. Collis

Thank you, Greg and Stefano, for those excellent comments and support of this relationship. I will now hand it over to Tim Guttman, AmerisourceBergen's CFO, who will take you through some of the detailed financials.

Tim G. Guttman

Thanks, Steve, and good morning, everyone. I'm very pleased to outline the financial benefits that we anticipate from our exciting new relationship. As Steve stated earlier, this is an unprecedented opportunity to collaborate with 2 of the world's premier health care companies and to significantly expand our core drug business.

In the past year, Steve and I have consistently communicated that we're confident in our long-term earnings growth trajectory, with a positive impact expected from both health care reform and improved generic launches. Our new Walgreens and Alliance Boots relationship further improves our ability to drive sustainable long-term growth through the remainder of the generic wave and beyond.

Steve outlined the components of the agreements we signed with Walgreens and Alliance Boots, and I will briefly address the combined benefits we expect to achieve. At the highest level, this relationship strengthens our business in 3 key ways: one, it brings substantial sales volume into our system for a very long period of time, which will enable us to continue to drive operational efficiencies throughout our core drug business, a business where leveraging scale is critically important; two, it improves our access to globally sourced generics, which will improve our customers' access to those products and ultimately make it easier for manufacturers to bring products to market; and three, the relationship accelerates our efforts to expand our manufacturer services business internationally, another area that Steve and I have been discussing externally the last year and one of critical importance to our long-term growth.

We still have quite a bit of work to do in analyzing the full impact of this transaction on our fiscal 2013 and 2014 years, but I will share the best information we have at this time with some additional detail to come when we report our March quarter earnings. In fiscal 2014, we anticipate $25 billion in incremental revenues from the new Walgreens contract for the full year.

Additionally, we expect that this new relationship will contribute approximately $0.20 in incremental earnings per share, and this excludes any associated warrant amortization expense. We anticipate that the incremental benefit would be somewhat back-end weighted as we will phase in the distribution of generics to Walgreens during the fiscal year.

It is important to note that the contribution of approximately $0.20 is net of a $0.05 negative impact from the expected delay in decommissioning our legacy IT system. Our organization will now be focusing on successfully onboarding Walgreens. So the shutdown of our legacy IT system will be delayed for approximately 12 months. Consequently, about half of our previously communicated $40 million ERP savings will now shift to fiscal 2015.

Also, our EPS contribution of approximately $0.20 includes the negative impact from higher operating costs, as our DC network is not optimized during the phase-in of the Walgreens volumes.

Switching gears to operating margin. While we had previously expected our operating margin to expand in fiscal 2014, given the high sales volume coming in from our new customer, we now expect some margin compression year-over-year. We do, however, expect margin expansion and, importantly, additional accretion in subsequent years. At this early stage, we expect our free cash flow to be greater than our net income and that we would engage in our normal capital redeployment activities in 2014.

Let's discuss our long-term view. Our new strategic relationship has increased our confidence in maintaining an average EPS growth rate in the mid-teens, even with the impact of the dilution from the warrants, but excluding the amortization associated with capitalizing the fair market value of the warrants. Overall, we have a terrific opportunity to grow our core drug business, advance our strategic objectives and importantly, generate shareholder value.

Now let's turn to the impact on our fiscal 2013. The new 10-year Walgreens distribution contract begins on September 1, giving us one month of incremental brand revenues of at least $2 billion. As a result, we have increased our fiscal 2013 expectations for revenue growth for the full year from 6% to 9%, to 8% to 11%.

In terms of earnings per share for fiscal 2013, we anticipate that the one month benefit of the income from the new relationship will be more than offset by certain onetime startup costs. Because of this, we have revised our GAAP guidance for EPS from continuing operations to a range of $2.96 to $3.06.

The revised EPS guidance includes startup operational costs, primarily the advanced hiring of new associates for our distribution centers; a onetime volume rebate that we agreed to pay Walgreens in September; and nonrecurring deal-related expenses. We are assuming prompt regulatory approval on certain aspects of the agreements.

Our GAAP EPS range does not include an anticipated onetime LIFO expense in the second half of the fiscal year that could be significant. This is due to the build of inflationary brand inventory late in the year. This expense is difficult to estimate at this time.

Our new GAAP EPS range also does not include amortization expense related to the warrants that we issued. We still have significant work to do with external advisors, but we anticipate that the fair market value of the warrants will need to be capitalized, and the asset could be in the $300 million range. We expect to have more clarity on these 2 items when we report our March quarter earnings.

We had previously given guidance for free cash flow for fiscal 2013 in the range of $750 million to $850 million. We now expect our free cash flow to decrease significantly due to the difference in timing between the inventory build, getting ready for the September 1 launch date, combined with not having AR cash collections until the latter part of September.

Our revised guidance for free cash flow for the full year is in the range of $100 million to $200 million, which includes $40 million in additional CapEx in fiscal 2013 due to investments we expect to make to maximize our DC network productivity and throughput.

In conclusion, we are very excited about the opportunities we have in front of us as we work in conjunction with 2 world-class leaders in health care. The expanded relationship with Walgreens and the new relationship with Alliance Boots provides us an outstanding opportunity to strengthen and enhance our core business.

As you think about how to determine the value of these agreements, consider that we are driving long-term sustainable growth in a way that preserves our ability to continue to redeploy capital, grow our business and generate shareholder returns.

Now I will turn it back to Barbara for Q&A.

Barbara A. Brungess

Thank you, Tim. We will now open the call to questions. [Operator Instructions] Please go ahead, Robert.

Question-and-Answer Session

Operator

Our first question comes from the line of John (sic) [Tom] Gallucci from Lazard Capital Markets.

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

I guess, Tim, I was just wondering if you could follow up a little bit. I understand that we'll get some more insight on the financial benefits to you all with the next quarter, but you mentioned $0.20. Could you just give us maybe a high-level view of where those benefits are coming from on a relative basis, whether it's generic purchasing or versus the efficiencies that you expect to get off the -- on the platform overall?

Tim G. Guttman

Yes, thanks, Tom. Yes, let me answer the question this way. I mean, really, we talked about 3 components to this relationship, and really 3 buckets on how we capture value. The first one is the distribution agreement, and there's a phase-in with brand and generic. And certainly, we're not as efficient as we should be early on. So again, when I look at that bucket, that's a shorter bucket in terms of how we capture that value over the first 1 or 2 years. Next, you have the global supply chain opportunity, and I would call that a mid-term opportunity. Yes, joint venture is in the first year. That benefit will ramp over time, so that's probably a 2 to 3 ramp up -- year ramp up. And finally, that third bucket is manufacturing services, and that's a longer term, probably a 3 to 5. So when you look at all those buckets together, that's why we believe that this is sustainable long-term growth. And again, we're not going to break out the contribution by any one bucket. But again, you can see how those buckets lay out over time and how they'll benefit our P&L.

Operator

[Operator Instructions] And next we'll go to the line of Ross Muken from ISI Group.

Michael Cherny - ISI Group Inc., Research Division

This is Mike in for Ross. So just one quick clarification. Tim, you talked about the $0.20 incremental EPS in 2014 related to the contract. Did you say that was net of the higher operating costs? So if you assume that those costs were part of the base, the EPS contribution would actually be higher? Just trying to back in a little bit to what you -- the implied margin is on this business related to the numbers you gave.

Tim G. Guttman

Yes. We talked about the $0.20, again, net of the IT costs, right, of the $0.05 there. And again, we also talked about that being net of startup costs. And again, we -- as that business comes on over time, we're hiring people in advance, we're training. There are some -- we're just not as productive where -- I talked about making some CapEx investments on our DCs. So again, that $0.20 is really a net number, and we do expect that. And again, the previous question, I talk about the 3 buckets. So that $0.20, we do expect to grow and, as we move through the years, to expand.

Operator

Next we'll go to the line of Lisa Gill from JPMorgan.

Lisa C. Gill - JP Morgan Chase & Co, Research Division

I had just 2 -- 1 follow-up question, Tim. When you talk about the margin expanding over time, can you maybe talk about the magnitude of how you see that? As we look at this margin, the margin looks much below what we saw for the Cardinal, at least what we believe the Cardinal contract is like. Can you give us an idea, number one, of the magnitude of that expansion? And then number two, can you maybe talk about how AmeriSource will benefit from the global supply chain agreement over time? Can you use that purchasing for the rest of your contracts? Or is it only around your relationship with Walgreens?

Tim G. Guttman

Yes, in terms of margins, I did make the comment again that we'll see some compression in '14. When we get into '15, we're confident we'll expand margins. I mean, if you look at historically, historically, we've always been in the high-single digit for margin expansion. It's early. I mean, that's -- again, we're halfway through our -- this year, this year fiscal '13. We haven't done our plan for '14. But I -- clearly, we expect to have meaningful margin expansion as we get to '15 and beyond.

Steven H. Collis

Lisa, this is Steve. Just to add to what Tim has been saying, there's a lot -- we're talking again about an enormous contract, we believe probably the largest contract that -- supply chain contract in the history of our industry, and we're going to bring this on very thoughtfully, very planfully with the Walgreens corporation. And we are impacted by different categories of products that we are bringing in. So we've got a tremendous amount of moving parts here, and we are confident that this is a very valuable contract and will be for all the stakeholders in our system. Just to talk about one of the truly innovative parts of this contract, we will be sourcing product from the Walgreens-Alliance Boots Development Corporation, which is part of the deal that was announced last year. We've, of course, got a lot of work to look at that structure, and we anticipate that this will bring tremendous benefits to our ProGen customers. And we will also have further opportunities down the road to source other products on a global basis. So again, this is another tremendous value creation opportunity not only for us but also for our customers. So we're excited.

Operator

We have a question from the line of Robert Jones from Goldman Sachs.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Steve, you talked a lot about the ability to source globally. Obviously, I would have thought historically, AmerisourceBergen is purchasing products from global manufacturers already. I guess, just if you could elaborate a little bit on what exactly changes here over time with this new relationship and your ability to source globally, are we moving closer to an AmerisourceBergen private label? Is that kind of how we should think about this?

Steven H. Collis

Well, that would clearly be one of the opportunities. But we really are -- we've not thought about -- we're not quantifying any anticipated savings, but we definitely believe there's going to be an expanded opportunity here. We're very confident. We've worked hard to ensure that the development corporation that's been established is going to provide a unique value proposition to us and all of our stakeholders. And we believe that it's going to be incremental to anything we could do on our own. Of course, that's one of the key tenets of this deal. So again, we're excited. There's a lot of moving parts here. Our first emphasis has to be on making sure that we safely and efficiently bring on the Walgreen stores. That's the key priority. At the same time, our supply chain group is working selectively to look at the global supply chain and are confident that this is going to produce a lot of value for all of the stakeholders.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

And then if I could, I just had a follow-up, maybe more for Greg. Obviously, this is a unique contract in the distribution world relative to what we're used to seeing. I guess, if you could, maybe what was the motivation behind allowing AmeriSource to assume the distribution of generics starting in 2014? Obviously, a lot of that -- you are well aware, a lot of large retailers here take on that responsibility themselves. So just curious why it was structured in that way.

Gregory D. Wasson

Yes. Yes, let me start from the beginning. Certainly, as I've said, with our successful first step with Alliance Boots last summer and our successful formation of the purchasing joint venture in Bern, we're off to a good start there and are -- with our current contract expiring later this summer, we began to look at all of our strategic options. And there were several. And certainly, the opportunity to expand our existing relationship, which we've had for years with AmerisourceBergen, to extend the long-term contract, to then leverage not only the efficiencies and the expertise that AmerisourceBergen has, but also the AmeriSource -- the expertise that Alliance Boots has and to bring those best practices together, we think can actually improve our supply chain, not only of what we do through our existing wholesaler, but the distribution of our own generics.

Operator

We'll go next to the line of Zack Sopcak from Morgan Stanley.

Zachary William Sopcak - Morgan Stanley, Research Division

[Audio Gap]

and about the impact of independent business and I was wondering if you had factored in any chance of losing independent business from a channel conflict now that ABC will be so large.

Steven H. Collis

So I think the first part of your question was not audible. But I think I've got that the question was about the risk of channel conflict. I just want to -- and my answer would be we service over 20,000 customers every day. I am fond of saying I take calls from customers that do $10 million a year to us, to customers that do billions of dollars. And I'm extremely confident in the culture of AmerisourceBergen that these customers will continue to feel like they are special, like they are cared for, and they should because we do appreciate all our customers, and we work extremely hard to make sure that they are successful. We would not have gone into this transaction if we didn't share a common vision for the critical role that pharmacy plays throughout the world. And our intention of all 3 companies is to enhance and protect and preserve that role. And that is at the core of what this relationship is. You look at the benefits that we have between Good Neighbor Pharmacy and Alphega in Europe, I think that's a fantastic opportunity. Greg and his team have been working on a community pharmacy-enhanced role with RxAlly. The 3 CEOs that report to Stefano are all pharmacists. I'm not a pharmacist, unfortunately. I wish I could have my college over, but we are extremely focused on the success of the independent pharmacies, and we believe that there will be not only financial benefits to our customers but also commercial benefits from the very strong community presence that Walgreens has in the United States, including best practices. And we are well along with developing some of these concepts that would help our customers.

Operator

The next question comes from the line of Eric Bosshard from Cleveland Research.

Eric Bosshard - Cleveland Research Company

Just wondering if you could put a little bit more skin on the bones in terms of the non-U.S. involvement of AmeriSource. Obviously, Alliance has got a pretty well-established non-U.S. distribution infrastructure and relationship. Just wondering how your business would integrate or have opportunities specifically there beyond the sourcing that you've spoken of.

Steven H. Collis

I'll just start off, and I'd love to give Stefano a chance to answer this as well. We have been looking thoughtfully at the rest of the world. We've been very pleased with our World Courier acquisition that we announced May 1 last year. We also believe a lot of our consulting and reimbursement businesses are very important, really could play a great role for helping us expand internationally. And when we looked at the Alliance Boots companies and the presence and their strength in the supply chain that they have not only in Europe but throughout the world, we really think that this is one of the best long-term benefits we are going to get from this relationship. And I'd like to let Stefano answer this as well.

Stefano Pessina

Well, first of all, we have to say that in Europe, the specialty business is now developed, or at least is really in the hospitals and they -- or distributors are not involved in it. But things are changing as. And as everybody knows, AmeriSource has a tremendous understanding of these markets. So we could benefit of it, and AmerisourceBergen could extend its understanding of these markets into Europe. Secondly, we could collaborate on the pre-wholesaling business where we act on behalf of the manufacturers Because if we can offer a worldwide service, this could be very appreciated. And third, of course, we have a lot of experience in extending our business into emerging markets not only in Europe, and I don't see any reason why we shouldn't collaborate in the future and do something together. So I see many, many opportunities in the next year for our collaboration.

Operator

We'll go to the line of Steven Valiquette from UBS.

Steven Valiquette - UBS Investment Bank, Research Division

Congrats on this agreement. This is probably certainly unexpected by probably most people on this call for sure, but I guess my question -- most of my questions for ABC, I think, have been answered, but curious from the Walgreens side. As far as the savings from this and the accretion, will this run through the Walgreens-AB joint venture? Or is this sort of separate from that? Just curious to get more color on that.

Gregory D. Wasson

Thanks, Steve. Certainly, the first step is, as I think Tim put it in the bucket, the long-term contract, we see certainly an improvement over existing contracts that we have. We see it modestly accretive after onetime costs in the first year. We're kind of working capital neutral with that improving over time. That will come directly through Walgreens, the opportunity in that second bucket to begin to work and jointly purchase through our joint venture that we put together this summer. Those revenue flows will flow through that joint venture into Walgreens.

Operator

And next we'll go to the line of George Hill from Citigroup.

George Hill - Citigroup Inc, Research Division

Tim or Steve, one quick question for you guys, and I'll have a quick follow-up for Greg, is how does this change who ABC purchases from? Will ABC kind of still consider its purchasing agnostic with respect to generics? Or how much of the purchasing will switch towards buying from Alliance?

Steven H. Collis

No, we would intend that the majority of our purchases will switch through the Walgreens-Alliance Boots Development Corporation, as we've outlined. This will take place over time. We think that this is a tremendous value proposition not only for our customers, but also for the manufacturers as we look to create a global supply chain. So this is one of the areas that we're excited about. And I think when Tim talked about the buckets, this is what we really mean. We think that ultimately, the 3 of us buying together and working with suppliers to harmonize a global supply chain is going to be truly beneficial. Tim, you...

George Hill - Citigroup Inc, Research Division

Okay. And then maybe a quick follow-up for Greg or Stefano. One of your large competitors seemed to decide years ago that there were more efficiencies, at least at that point, to be found on the buy side of the supply chain by integrating one of the payers. You guys are obviously making the bet now that it makes more sense to integrate, I guess, some sort of on the acquisition side of the supply chain. I guess, can you talk about what you saw that -- what was attractive about AmerisourceBergen? What made them different from the other 2 wholesalers? And I guess, can you talk about your perspective on where there's more value to be achieved in the distribution supply chain?

Gregory D. Wasson

Maybe I'll start, and I'll let Stefano finish up because frankly, he's got a lot of experience with this, with the Alliance health care relationship with Boots that they formed years ago. And I think the real opportunity there is the ability to create a more robust supply chain and create efficiencies in that supply chain. So to your point, right, we think there's much more opportunity to focus on the supply chain end-to-end from pharma to patient versus the other way around, as you just described. We think we've got the best partner that has the experience in having done that in Europe with Stefano and his team, and certainly the premier wholesaler here in the U.S., which is strategically aligned with us to make that happen. Stefano?

Stefano Pessina

Exactly. In reality, as you know, at Alliance Boots, we have always believed that the vertical integration between wholesaler and pharmacies could give a lot of benefits. And we were the first in Europe to do this and -- as a wholesaler to buy pharmacies. And after with our merger with Boots, of course, we could extend our experience in this direction. We have created a lot of synergies, a lot of benefits. And so we can see these benefits even here in the U.S. And if we will be able -- as we will be able to create a very strong collaboration between Walgreens and AmeriSource, all the experience that we have done in Europe will be, in reality, transferable. Furthermore, there are other important elements of synergies that you could affect that we will be able to present to our suppliers, a truly -- a global distributor. And of course, the consequence of this are not yet completely explored, but I am sure with the experience that I have had in integrating many different countries in the rest of the world, I am sure that this will be a powerful tool for us to improve our competitive advantages.

Barbara A. Brungess

Thanks, George. And now Steve would like to make some closing comments.

Steven H. Collis

Thank you, everybody. I think it's unusual that you get to have 2 people of the stature of both Greg and Stefano on a call with us. We're very honored to work closely with these 2 talented and innovative and visionary gentlemen. AmerisourceBergen's future as a strong independent company closely aligned with the objectives of all of our customers, we think, is truly reinforced by this partnership announced today. And we really thank you for your time and attention and being available on such short notice to join us on this call. And we look forward to speaking to a lot of you over the next couple of days. Many thanks.

Barbara A. Brungess

Thanks, operator. We'll turn it back to you.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.

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