Alliance Boots and Walgreens: the deal explained

What is Walgreens?

Walgreens says it is the largest drugstore chain in the US and it posted sales of £45.9 billion ($72bn) with a net profit of £1.7bn ($2.7bn) for the year ending August 31, 2011. However, it suffered a blow in June last year, as its contract with prescription business Express Scripts came to an end. The company had processed 88 million of Walgreen's prescriptions, representing £3.4bn ($5.3bn) of its sales, and the company said it expected the loss to "adversely affect" net sales and earnings in 2012.

When did the talks begin?

The companies say they have been working together for years now, but only started discussing the deal 18 months ago. Alliance Boots executive chairman Stefano Pessina said it had always been his ambition to make the company "a global player" and stressed that the deal would produce efficiency savings for both parties and a "better service for all our stakeholders".

Will Walgreens own Alliance Boots?

At the moment, no. Walgreens will invest around £4.2bn ($6.7bn) in cash and stock into Alliance Boots for a 45 per cent stake in the company until 2015. At this point it can choose to buy the remaining 55 per cent of Alliance Boots, paying £3.1bn ($4.9bn) in cash and issuing 144.3 million shares for the remaining equity of the company. If it declines the offer, Walgreens' ownership will reduce to 42 per cent. But Mr Pessina has stressed that, if the deal did go through, both brands would keep their heritage. He said any new joint company name would still reflect the "tradition and story" of Alliance Boots and firmly denied it would be a takeover on Walgreens' part.

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What will the deal mean for the UK business?

The companies expect the deal to make total efficiency savings of between £63.8m ($100m) and £95.7m ($150m) in the first year. If Walgreens chooses to buy the remaining stake of Alliance Boots in 2015, it is estimated that the savings will rise to £638m ($1bn) by the end of 2016. Together, the companies will employ nearly 365,000 people in more than 25 countries. And Alliance Boots has said the deal could see its own-brand products such as No7 sold in Walgreen stores in the US. The companies have also set out plans for expansion into new markets, with Mr Pessina citing Latin America and China as priorities.

What will this mean for UK employees?

Mr Pessina has stressed that the merger will not create job losses in the UK, saying it will become the "centre of development for new products" – potentially creating more vacancies in the business' product development arm. And Alliance Boots bosses have also pledged not to change terms of employment in the UK. Mr Pessina said the company's pension scheme would remain the same, while chief executive of the company's health and beauty division Alex Gourlay said the deal would not have any impact on employees' contracts.