A securities class action claim was recently filed on the behalf of the investors of Walgreen Co.
Based in Chicago, Illinois, Walgreens is the single biggest drug retailing chain in the U.S. Figures from the company’s website reveal that through Feb. 28, the organization had more than 8,200 stores across the U.S.
Robbins Geller suit
On April 10, 2015, Robbins Geller Rudman & Dowd LLP announced that a shareholder class action had been brought forth to represent an institutional investor. The lawsuit – brought forth in the U.S. District Court for the Northern District of Illinois – was filed to represent all individuals and organizations that purchased the common stock of Walgreens between March 25, 2014, and Aug. 5, 2014.
The securities class action claim launched by Robbins Geller involved allegations of false and misleading statements, and charged the company – along with some of its former officers – with breaching the Securities Exchange Act of 1934.
Pomerantz LLP legal claim
Pomerantz LLP announced a separate legal action on April 14, 2015, which also alleged that the major drug retailer – and also some of its officers – broke federal securities laws contained within the Securities Exchange Act of 1934.
The Pomerantz securities class action claim was filed to represent all organizations or individuals who bought Walgreens securities between March 25, 2014, and Aug. 5, 2014. The legal action, brought forth in the U.S. District Court, Northern District of Illinois, Eastern Division, sought to recover damages against the aforementioned defendants for alleged violations of the federal securities laws existing under the Securities Exchange Act of 1934.
Both of the aforementioned shareholder lawsuits claimed that during the class period, defendants provided statements that were false and misleading – and/or failed to reveal adverse information – about the business and prospects of Walgreens, including the specific benefit the major drug retailer would receive from its strategic partnership with Alliance Boots GmbH.
“The securities class action claims allege that defendants didn’t disclose an earnings shortfall between $1.8 and $2.3 billion for fiscal year 2016.”
The securities class action claims specifically allege that defendants didn’t disclose an earnings shortfall between $1.8 and $2.3 billion for fiscal year 2016 as well as the reasons for this unfortunate circumstance.
However, they did name specific goals, including $1 billion in combined synergies and between $9 and $9.5 billion in EBIT for fiscal year 2016. According to both of the aforementioned lawsuits, company stock rose to as much as $76.08 during the class period as a result of the false and misleading statements – and/or omissions made by defendants – during the class period.
Walgreens-Alliance Boots partnership
Some of the allegations contained in the securities class action claims centered around statements defendants made about the strategic partnership between Walgreens and Alliance Boots GmbH, announced June 19, 2012.
That day, the two firms revealed their plan to develop the first global pharmacy-led health and well being enterprise. Walgreens and Alliance Boots stated that the two-phase process would result in a superior portfolio of health and wellness brands, a supply chain with no equal and a one-of-a-kind platform in developed and emerging markets.
For the first part of the partnership, which happened in 2012, Walgreens paid roughly $6.7 billion in cash and stock in exchange for a 45 percent equity ownership stake in Alliance Boots. This consideration consisted of $4 billion in cash and 83.4 million shares of the major drug retailer’s common stock, worth roughly $2.7 billion at their closing price of $31.96 on June 18, 2012.
“Walgreens paid roughly $6.7 billion in cash and stock in exchange for a 45 percent equity ownership stake in Alliance Boots.”
For the second part, Walgreens bought the 55 percent equity stake that was left Dec. 31, 2014, for roughly $5.3 billion in cash and 144.3 million shares of the major drug retailer’s common stock. It is worth noting that while the first phase of the transaction did not require a shareholder vote, the second part did.
Company’s FY 2016 goals
Walgreens publicly announced its goals for FY 2016 after the phase one of the partnership took place in August 2012. These metrics generated visibility, as both the company and analysts harnessed them as a means of evaluating whether the partnership – which the defendants repeatedly promoted as generating significant benefits – was succeeding.
In addition to assisting market observers in assessing the benefits of the partnership, the goals served as information shareholders could use when determining whether to vote in favor of step two of the transaction.
Revision of financial performance
On an investor call held Aug. 6, 2014, defendants lowered their FY 2016 EBIT target to $7.2 billion, $2.3 billion less than the previous estimate’s high end and $1.8 less than its low end.
Defendants also revealed that because the $7.2 billion EBIT estimate contained a new $1 billion worth of cost savings that were additive to the previously revealed $1 billion in cost synergies, the major drug retailer’s base business would suffer a 4 percent negative compound annual growth rate during the next two years.
During the call, Gregory Wasson, who was CEO of Walgreens at the time, stated that “we’re not happy about lowering our previous goals.” In addition, he shed some light on the difficulties the major drug retailer was facing, claiming that “we have been challenged by the ongoing global pharmacy reimbursement pressure, which continues, and the rapid and pronounced increase in generic drug pricing, which we did not fully anticipate and now expect to persist longer than we anticipated.”
“When investors found out about the earnings expectation shortfall, Walgreens shares fell more than 14 percent.”
Wasson also explained the revenue shortfall, stating that the company had thus far not been “able to fully mitigate [generic inflation] given the structure of certain existing contracts.”
When investors found out about the earnings expectation shortfall, Walgreens shares fell more than 14 percent, closing at $59.21 per share on Aug. 6, 2014, compared to a closing value of $69.12 a share on Aug. 5, 2014.
What investors should know
Robbins Geller announced that if eligible investors want to serve as lead plaintiff, they have until no later than 60 days from the suit’s announcement on April 10, 2015, to move the court. Pomerantz revealed that if shareholders purchased Walgreen securities during the class period and want to request appointment as lead plaintiff in the securities class action claim, they have until June 9, 2015, to move the court.