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AmerisourceBergen Corporation (ABC - Analyst Report) recently announced that the company has entered into a definitive agreement with Canadian distributor Kohl & Frisch Limited aimed at divesting its Canadian Pharmaceutical Distribution Business.

As per the agreement, AmerisourceBergen Corporation will sell its Canadian pharmaceutical distribution business, AmerisourceBergen Canada Corporation (ABCC) to Kohl & Frisch Limited for approximately $80 million – $100 million. AmerisourceBergen Corporation will hang on to its specialty business unit in Canada.

The performance of the ABCC unit has been disappointing in recent times. On its first quarter fiscal 2013 earnings conference call in Jan 2013, AmerisourceBergen stated that ABCC was having a tough time in implementing a large new retail contract in the Canadian market due to significant reimbursement challenges, particularly for generics.

The transaction is expected to close in the third quarter of fiscal 2013. As a result of the sale, AmerisourceBergen Corporation expects to record an estimated loss on sale and other impairment charges in the range of $160 million and $180 million in the second quarter of fiscal 2013.

Consequently, AmerisourceBergen revised its guidance for 2013. AmerisourceBergen now expects revenues in 2013 to grow by roughly 8% to 10% compared to the previous guidance of 8% – 11%.

AmerisourceBergen increased its earnings guidance in fiscal 2013 to $3.04 – $3.14 from the earlier estimated range of $2.96 – $3.06. The Zacks Consensus Estimate for fiscal 2013 stands at $3.06.

The revised guidance does not include the impact of extraordinary expenses related to the distribution deal signed with Walgreen Company (WAG - Analyst Report) and Alliance Boots GmbH in Mar 2013.

We note that last month AmerisourceBergen entered into a strategic agreement with Walgreen and Alliance Boots GmbH. The agreement includes a 10-year pharmaceutical distribution contract with Walgreens and access to generic drugs and related pharmaceutical products through the Walgreens Boots Alliance Development joint venture.

In return, both Walgreens and Alliance Boots have been granted rights to jointly purchase a minority equity position in AmerisourceBergen.

We note that Walgreens chose AmerisourceBergen over peer Cardinal Health (CAH - Analyst Report) with whom it already had a pharmaceutical distribution contract but decided not to renew the same.

AmerisourceBergen carries a Zacks Rank #3 (Hold). Right now, CVS Caremark Corporation (CVS - Analyst Report) looks well placed with a Zacks Rank #2 (Buy).

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