McKesson extends its Canada supply chain reach with $2.23B deal for Rexall chain

One way for a drug wholesaler to strengthen its position in the supply chain is to own the drugstores that sell its meds. That is what drug distribution giant McKesson ($MCK) says it will do in Canada with a $2.23 billion (C$3 billion) deal for a leading pharmacy chain there.

San Francisco-based McKesson said on Wednesday it is buying Rexall Health from Canada's Katz Group, picking up 470 retail pharmacies and about 8,600 employees. It said it would be particularly beneficial to secure its position in Ontario and Western Canada, two of Canada's fastest-growing regions. The deal follows McKesson's 2012 deal when it paid C$920 million to buy a chain of franchise pharmacies in Canada from Katz.

McKesson called it a "natural next step for two companies that have worked together for over 20 years." It said it would use a mix of cash and debt to pay for the acquisition and expects it to add slightly to 2017 earnings but kick in more significantly in fiscal 2018.

McKesson has made a number of acquisitions in the past few years as it battles for revenues and competes for market share globally with rival AmerisourceBergen ($ABC). It faces losing a major part of its business to AmerisourceBergen after the Rite Aid drugstore chain agreed in October to be acquired by Walgreens Boots Alliance ($WBA) in a $17.2 billion deal. Walgreens has a small ownership interest in and gets its drugs from AmerisourceBergen. The Federal Trade Commission is giving the Rite Aid and Walgreens deal close scrutiny.

Last year McKesson struck a $466 million (€408 million) deal to buy drug distribution businesses in the two Irelands and the year before that bought Germany-based Celesio for about $5.4 billion. Those moves came after AmerisourceBergen struck its deal with Walgreens Boots Alliance, securing their business in Europe.

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