Two major US drugstore chains to combine - EXPO

THURSDAY, OCTOBER 29, 2015 I Bangkok Post WORLD BUSINESS I B7
Two major US drugstore chains to combine
Walgreens pays $9.4bn
for smaller rival Rite Aid
MICHAEL J. de la MERCED
HIROKO TABUCHI
Pedestrians walk past a Rite Aid store in Oakland, California in this April 1, 2015, file photo. REUTERS
technology
Apple profit
jumps 31%
as iPhones
sell briskly
KATIE BENNER
New York: Apple Inc on Tuesday turned
in another quarter of enviable revenue and
profit growth, fueled by sales of the iPhone.
But the results raised a perennial question
for the world’s most valuable company:
How can it keep its growth streak alive?
The issue was stoked by Apple’s muted
forecast for its all-important holiday quarter, as well as the unwillingness of Timothy
D. Cook, the company’s chief executive, to
go into detail in an earnings conference
call about how Apple plans to rev up sales
next year.
Overall, Apple posted a profit of $11.1
billion for its fiscal fourth quarter, up 31%
from a year ago. Revenue was $51.5 billion,
up 22% from last year. The results exceeded
Wall Street estimates.
Yet while the performance was bolstered
by sales of the iPhone — Apple said that
it sold 48 million iPhones in the quarter,
up from 39 million in the same period last
year — the company was more cautious
about sales for the key holiday sales period.
Apple projected revenue of $75.5 billion
to $77.5 billion for the end-of-year quarter.
While the sheer numbers are huge, the low
end of the forecast fell below Wall Street
estimates and would amount to anemic
growth of less than 4% from a year ago.
The last time Apple’s quarterly sales fell
below 4% was in mid-2013.
When asked on the earnings call about
Apple’s growth prospects in 2016, Cook also
said, “We don’t guide beyond a quarter.”
The growth question is a quandary created by Apple’s own success.
The company has gotten investors
accustomed to double-digit growth rates
and enormous profit. That sets a high bar
for Apple to clear each time and creates
tough comparisons to beat later.
Cook for the most part shrugged off the
growth question.
In the conference call, he said Apple’s
full fiscal year revenue was equivalent to
that of almost 90% of the companies in the
Fortune 500.
Apple delivered “a strong finish to a very
strong year,” even with a strong dollar that
has forced the company to raise prices
in many of its markets around the world,
Cook said.
Apple is going into 2016 with a full slate
of refreshed products. In late September, the company introduced its newest
iPhone models, the 6s and 6s Plus. It also
announced a larger iPad, the iPad Pro,
and will begin shipping a new Apple TV
this week.
While the iPhone continues to grow,
the iPad has been facing declines. For the
fiscal fourth quarter, Apple said iPad sales
dropped 20% from a year ago, making it
the seventh consecutive quarter that sales
of the tablet have slipped. The company did not break out sales of
the Apple Watch, which debuted in April.
But the category called “other products”
— which includes the watch — posted $3
billion in revenue in the quarter, up from
$2.6 billion in the previous quarter, which
was the first quarter that included sales of
the device.
Ben Bajarin, an analyst at Creative Strategies, said that the numbers for the “other”
category were in line with his expectations,
and implied somewhere between 3.5 million and four million watches were sold
over the quarter. ©2015 The New York
Times
New York: As companies throughout
the universe of the healthcare industry
accelerate the pace of consolidation, two
of the biggest drugstore chains in the Unites
States have agreed to combine to create a
new giant.
Walgreens Boots Alliance Inc said on
Tuesday that it would buy Rite Aid Corp for
more than $9.4 billion in cash, significantly
bolstering its influence with drugmakers
and pharmacy benefit managers.
But the combination may draw a sceptical eye from government regulators
concerned about the retail pharmacy
market effectively shrinking to only a few
big chains.
The deal is the latest taking place in the
sweeping changes under the Affordable
Care Act, which has inspired drug makers,
insurers and others to combine.
For pharmacies, a rise in insured Americans has increased prescription demand,
helping increase the total revenue of the
nation’s retail, mail and specialty pharmacies 7% last year from 2013. At the same
time, companies have also been pressured
to keep costs down.
Walgreens Boots Alliance, itself forged
in the combination of Walgreen Co and
the European chain Alliance Boots, has
made no secret of its desire to expand
through acquisitions.
Led by Stefano Pessina, a trained nuclear
engineer and former academic who sold
Alliance Boots to its American counterpart,
the company has strongly hinted that Rite
Aid would be a target.
“Today’s announcement is another
step in Walgreens Boots Alliance’s global
development and continues our profitable
growth strategy,” he said.
Even before the Alliance Boots deal,
Walgreens has kept busy with mergers,
acquiring Duane Reade, USA Drugs and
Kerr Drug to grow to more than 8,200 stores
and revenue of $76 billion last year.
Under the terms of the deal announced
on Tuesday, Rite Aid shareholders will
receive $9 a share — a premium of 48% to
its closing stock price Monday.
Buying Rite Aid would give Walgreens an
additional 4,600 stores in 31 states, adding
to its roughly 8,200 locations across the
country, Puerto Rico and the Virgin Islands.
The biggest drugstore chain by market
capitalisation, CVS Health, has also grown,
acquiring Long’s Drug, Medicine Chest and
Navarro Discount Pharmacy. It now runs
more than 7,800 stores.
With years of steep losses, Rite Aid,
which itself acquired the Brooks and Eckerd
pharmacy chains in 2007, has fallen to a
distant third.
“The pharmacy consolidation endgame
has begun,” said Adam J. Fein, president
of Pembroke Consulting, a firm based
in Philadelphia that specialises in the
pharmaceutical industry. “Rite Aid was
one of the last remaining pharmacy assets
available for purchase.”
“Even with its debt, Rite Aid could have
survived into the future. But this combination will give the new business a lot more
scale,” he said. “The combined entity will
have a lot more power against pharmacy
benefit managers and other payers. They
will be able to negotiate higher reimbursements for prescriptions.”
Rite Aid will be a wholly owned subsidiary of Walgreens operating under its own
brand name when the deal is completed.
Yet the transaction, which is expected to
close by the end of next year, could draw
significant antitrust scrutiny.
Regulators will study specific geographical areas where Walgreens and Rite Aid
compete, according to Jeffrey S. Spigel, the
head of the antitrust practice at the law firm
King & Spalding.
The combined new business will most
likely need to divest itself of overlapping locations.
“The FTC is also likely to scrutinise the
changing ways in which consumers buy
pharmacy items and prescriptions, and
assess whether there is ample competition
for these products,’’ Spigel said.
“I expect that the companies will argue
that the competition is now broader than
just the Rite Aids, Walgreens and CVSs of
the world,” he said. “They’ll argue that you
need to take into account competition from
pharmacies that are in grocery stores, that
are in Wal-Marts, that sell through mail
order.” ©2015 The New York Times
defence industry
Bomber contract gives Northrop financial lifeline
Richard Clough
Tony Capaccio
New York/Washington: Northrop
Grumman Corp, shut out of prime contracts for US warplanes since the B-2 in
the 1980s, on Tuesday won a Pentagon
sweepstakes valued at as much as $80 billion to build the Air Force’s Long-Range
Strike Bomber.
In beating a team of Lockheed Martin
Corp and Boeing Co, Northrop overcame
the world’s two largest defence contractors
and secured a financial lifeline stretching
into the 2020s.
The plane, still highly classified after
years of planning, will be the military’s first
new bomber since the Cold War and one
of the biggest US weapons systems of the
next decade.
“There was a David and Goliath situation going on,” said Richard Aboulafia, an
analyst at consultant Teal Group. “This is
disappointing for Lockheed Martin, pretty
bad for Boeing, but transformational for
Northrop Grumman. They go from being
a collection of operating units to a first-tier
prime with a strong central core.”
Lockheed and Boeing, which both have
other warplanes in service or under development, worked together on their bid for
the Long-Range Strike Bomber.
The new plane will join the B-2 and is
due to enter service in the mid-2020s as the
successor to the 37-year-old B-1 and the
Eisenhower-era B-52. The Air Force wants
aviation
Delta parts company with
US airline trade group
New York/Dallas: Delta
Air Lines Inc
will leave the US industry’s main trade
group in 2016 after the world’s third-largest
carrier staked out policy differences with
several of its peers.
The move was not unexpected as the
carrier has not been aligned with other
members of Washington-based Airlines for
America (A4A), the group’s chief executive officer, Nick Calio, said in a statement
on Tuesday.
Delta didn’t agree with the group’s support for reorganising the US air traffic control system and removing it from federal
oversight, A4A said.
Delta’s exit underscores the gap among
US airlines over competition from Persian
Gulf carriers.
The Atlanta-based airline has been the
largest source of funds for lobbying against
what it says are unfair government subsidies for the Gulf trio — a stance backed by
American Airlines Group Inc and United
Continental Holdings Inc. JetBlue Airways
Corp has supported expansion by the
Middle East carriers.
“It makes some sense,” said George
Hamlin, president of Hamlin Transportation Consulting. “You’ve got quite a disparate group. It’s useful to have a trade group,
but sometimes you have members going off
in different directions.”
Delta also has differed with other A4A
members over the US Export-Import Bank,
lobbying Congress against renewal of the
agency that provides low-interest loans
to help foreign carriers buy Boeing Co’s
wide-body aircraft to compete on international routes.
“Delta’s departure, and the loss of about
$5 million the airline paid in annual dues,
won’t affect the trade group’s staffing or the
scope of its work,’’ A4A spokeswoman Jean
Medina said in an e-mail.
A4A hadn’t taken a strong stance in the
Gulf carriers issue given the differing views
among its members.
Delta, American and United are asking
the Obama administration to seek consultations with the United Arab Emirates
and Qatar related to the issue as part of the
Open Skies agreements the US has with
both states.
Delta’s annual A4A dues “can be better
used to invest in employees and products
to further enhance the Delta experience,
and to support what we believe is a more
efficient way of communicating in Washington on issues that are important to Delta
customers and employees,” Kate Modolo,
a Delta spokeswoman, said in an e-mailed
statement. bloomberg
ANA’s first-half profit soars
Tokyo: All Nippon Airways said yesterday
that its six-month net profit soared 51% as a
jump in inbound tourism boosted its international business, while falling oil prices
also help airlines’ finances.
The airline has been given a lift by
an expansion of landing slots at Tokyo’s
Haneda Airport, while a weak yen has
been drawing record numbers of tourists
to Japan.
ANA has been in a spat with its rival
and one-time flag-carrier Japan Airlines
(JAL) over the allocation of landing slots
at Haneda, after JAL emerged from one of
the nation’s biggest-ever bankruptcies following a government rescue.
JAL reports its earnings later this week.
Falling oil prices have also helped the
carrier’s bottom line — fuel is often an airline’s single-biggest expense.
ANA Holdings Inc, the parent company
of All Nippon Airways, said its profit in the
April-September period was 53.97 billion
yen ($448 million), with revenue up nearly
seven percent from a year ago.
“ANA continued to see a positive impact
from the expansion in its international
flight slots at Haneda airport at a time
when demand for business use is growing
steadily,” said Hiroshi Hasegawa, an analyst
at SMBC Nikko Securities.
“A cut in fuel costs in the wake of falls
in crude oil prices also contributed to
the profit gain. I’m not seeing any major
negative factors for the industry right
now, but an economic slump could
hurt demand for business class seats in
the future.”
ANA this summer threw a lifeline to
struggling domestic rival Skymark Airlines,
Japan’s third-biggest airline, which flies on
domestic routes.
Skymark filed for bankruptcy protection
in late January in the face of potentially
massive penalties linked to a cancelled $2.2
billion jet order with Airbus SAS.
The Skymark deal would expand ANA’s
landing slots and give it the upper hand in
setting airfares.
In August, Skymark creditors voted in
favour of a rescue plan led by ANA, edging
out a rival bid that included US carrier Delta
Air Lines.
ANA is aiming to lure more Chinese
tourists to Japan in the second half by
boosting flights between Haneda and airports in China, the Nikkei business daily
has reported. afp
a durable, stealthy aircraft that can fly deep
into enemy territory to attack hidden or
mobile targets.
What that plane will look like is still
unknown, at least to the public. A Northrop commercial during the 2015 Super
Bowl subtly tried to link its jet — shown
as a shrouded flying-wing shape — to the
B-2 and other past aviation glories. But
there has been no indication whether the
new jet will resemble that shape or some
other design.
“Northrop’s proposal is the best value
for our nation,” Air Force secretary Deborah Lee James said at a news conference at
the Pentagon.
Based on figures released on Tuesday,
which exclude the cost of any related
future military construction, the bomber
programm e calls for spending $23.5 billion
in development plus $56 billion on procurement, or about $564 million for each
bomber in 2016 dollars.
“Northrop has won ‘the’ military aircraft
award of the decade, and assuming that it
goes to plan this will be a key driver of revenue growth for at least the next 10 years,”
Robert Stallard, an RBC Capital analyst,
said in a note to clients.
He estimated that the programme could
add about $1 billion in annual revenue
starting in 2018.
Howard Rubel, an analyst with Jefferies
LLC, projected that the plane could account
for as much as 10% of Northrop’s sales —
2014’s total was $24 billion — within a
few years.
Lockheed and Boeing could choose to
protest the award, which typically must
happen within two weeks, according to
Nick Taborek, an analyst with Bloomberg Intelligence.
Given the years of research that went
into the decision, the chances of overturning it “are likely even slimmer than the
usual 4% success rate,’’ he said in a report.
The plane also was of less-urgent
financial consequence to Lockheed, the
builder of the F-35 fighter, and Boeing,
the commercial-and-defence giant whose
military programmes include the KC-46
tanker. Together, their revenue is about five
times that of Falls Church, Virginia-based
Northrop. bloomberg