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Walgreens Faces Uphill Battle to Snag AmerisourceBergen

A combination of Walgreens and drug distributor AmerisourceBergen would be fraught with valuation and operational challenges, says Morningstar's Vishnu Lekraj.

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Vishnu Lekraj: On Monday it was reported that Walgreens has approached AmerisourceBergen about a merger. While this may be a surprise to some analysts, we've expected this for a while, as Walgreens has purchased about 26% of AmerisourceBergen equity and has integrated a good deal of its operations with the drug distributor. 

However, we are uncertain that this deal makes a lot sense from the point of view of AmerisourceBergen. We've assigned the company a wide moat and believe it has deep competitive advantages moving forward. Walgreens, on the other hand, we believe has a no-moat business, and it will struggle over the long term. Thus, we believe a premium above $106 fair value estimate for AmerisourceBergen will be needed in order for this deal to be consummated. 

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Vishnu Lekraj does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.