NEW YORK — Walgreens Boots Alliance has reportedly agreed to be acquired by Sycamore Partners, a private equity firm. This move comes as the retailer seeks a turnaround after experiencing financial losses in recent years.
According to Thursday’s announcement, Sycamore will offer $11.45 per share, valuing the deal at just under $10 billion. There is also the potential for shareholders to receive up to an additional $3 per share, depending on specific conditions.
Taking the drugstore chain private through a buyout would provide greater freedom to implement changes aimed at improving the business, without the pressure of immediate Wall Street reactions. Walgreens has already initiated significant changes as part of its turnaround efforts, marking a shift for the company, which has been publicly traded since 1927.
Walgreens, which was established in 1901, has been struggling with issues such as reduced prescription reimbursements, increasing expenses, ongoing theft, and cost-conscious consumers seeking more affordable options elsewhere. The company is currently in the initial phases of a plan to close 1,200 of its approximately 8,500 locations in the U.S.
The Deerfield, Illinois-based company had already closed roughly a thousand U.S. stores following its expansion to nearly 9,500 locations after acquiring select Rite Aid locations in 2018.
Last August, the company also announced a review of its U.S. healthcare operations, an area it had aggressively expanded, and indicated it may sell all or part of its VillageMD clinic business. This announcement came less than two years after the company committed billions to expanding this segment.
Walgreens’ shares lost almost two-thirds of their value the previous year. The company stated that the acquisition price represents a premium of nearly 30% over the share price in December, when rumors of a potential deal first emerged. CEO Tim Wentworth confirmed in January that a sale process was underway. Including debt, the deal is valued at just under $24 billion, according to the company.
Earlier this year, Walgreens reported progress in improving prescription reimbursement rates.
Walgreens has also taken actions to conserve cash, including suspending a quarterly dividend it had been paying for over 90 years, which was announced in January. Additionally, it has been reducing its stake in the drug distributor Cencora this year, in part to generate cash for debt reduction.
Ultimately, according to Leerink Partners analyst Michael Cherny in a February 23 research note, improving cash flow is essential for the company, regardless of whether it remains public or goes private.
The analyst wrote, “Management has been vocal about its efforts to improve cash flow generation as part of the turnaround plan. Without cash flow, the value proposition doesn’t hold.”
Walgreens Boots Alliance Inc. also operates nearly 3,700 international stores in countries including the United Kingdom, Mexico, Thailand, and Ireland.
The Walgreens buyout follows Rite Aid’s emergence from Chapter 11 bankruptcy reorganization as a private company last September. CVS Health Corp., the nation’s largest drugstore operator, along with retailers like Walmart and Kroger that operate pharmacies in many of their stores, remain publicly traded.
