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CEO: Walgreens would be 'delighted' by deal to revamp stores

Walgreens Boots Alliance Inc. is still open to doing a deal in the wake of CVS Health Corp.'s bid to buy Aetna Inc., the company's top executive said March 28.

Merging with an insurance company, as CVS is aiming to do, is not "inevitable" for Walgreens, CEO and Executive Vice Chairman Stefano Pessina told analysts during a call to discuss the company's fiscal second-quarter results.

But asked about the company's plans to make changes to the format of its U.S. stores in future quarters, Pessina indicated that the company would be open to a deal that helps revamp its retail footprint.

"[If] we could do a good deal with someone at reasonable, reasonable terms where we could see a substantial return not just in earnings per share but also... in cash return, we'll be delighted to do it," he told analysts.

The chain is planning to pilot a new store format at certain locations "in the coming months," co-COO Alexander Gourlay said during the call. The new format is based on testing that Walgreens has carried out over the past three years and will feature new products in the retail portion of the store as well as additional healthcare offerings in the pharmacy.

The company had previously indicated its interest in new store formats during a call to discuss first-quarter earnings in January.

Pessina said store format will be "the main transformation" at the retailer in the next few years. Pointing to technologies deployed in China by Alibaba Group Holding Ltd. and Tencent Holdings Ltd., he said Walgreens will "have to think in a different direction for the future."

"It's clear that the more services we'll be able to offer, the easier it will be to catch the customer and to keep the customer with you," Pessina said of his company's store strategy.

The executives' comments come about one month after CNBC reported that deal discussions between Walgreens and drug distributor AmerisourceBergen Corp. ended without a merger agreement. Walgreens has faced questions from analysts about its M&A plans since rival CVS announced its deal, worth about $69 billion, to buy insurer Aetna in December 2017.

Executives on the March 28 call, including Pessina, declined to comment on the reported AmerisourceBergen talks when questioned by an analyst.

Walgreens has signaled that it wanted to shake up its stores in recent quarters: In November 2017, the company said it had expanded its partnership with FedEx Corp. to 7,500 stores since launching the collaboration at the beginning of the year. Walgreens operates about 8,100 stores in the U.S., according to S&P Capital IQ.

The retail pharmacy chain has also extended a revised selection of cosmetic products, including a revamped selection of its private-label beauty items, to about 2,900 stores, Gourlay said.

Walgreens' recent acquisition of 1,932 stores from Rite Aid Corp., completed since the end of Walgreens' fiscal second quarter, "is allowing us to accelerate" changes to stores, Gourlay added.