Walgreens to go private in $10B deal
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Drugstore chain Walgreens Boots Alliance on Thursday announced that it will go private.
The struggling company entered into an agreement with private equity firm Sycamore Partners valued at $10 billion. Sycamore will pay $11.45 per share, a premium of 8% to the stock’s closing price of $10.60 on Thursday. Shares of the company rose nearly 6% in extended trading.
Walgreens shareholders could also receive an additional $3 in cash from future monetization of the company’s debt and equity interests in VillageMD.
WALGREENS COULD ‘AGGRESSIVELY’ CUT COSTS IF PRIVATELY OWNED, ANALYST SAYS
Walgreens Boots Alliance entered into an agreement with private equity firm Sycamore Partners valued at $10 billion. (Leonardo Munoz/VIEWpress / Getty Images)
The company’s market value has shrunk to just more than $9 billion from almost $100 billion a decade ago as margins on drug prices fell and consumers shifted to cheaper rivals Amazon and Walmart to fill their prescriptions and purchase toiletries.
And when rivals diversified into insurance or prescription management, Walgreens invested billions buying other pharmacy chains despite the trend away from in-store shopping.
As a result, the second-largest U.S. pharmacy chain’s debt and lease obligations have ballooned to almost $30 billion.
Walgreens shareholders could also receive an additional $3 in cash from future monetization of the company’s debt and equity interests in VillageMD. (Luke Sharrett/Bloomberg via Getty Images / Getty Images)
“As a private company, WBA [Walgreens Boots Alliance] would have more flexibility to make major changes to the business, in our view, and aggressively cut costs to try to tackle recent challenges with pharmacy operating margins and declining retail product sales from increased online competition,” CFRA Research analyst Paige Meyer told FOX Business in December.
WHY NEIGHBORHOOD PHARMACIES ARE CLOSING
In October, the company, which has been struggling with competition from rivals like Amazon, announced plans to close at least 1,200 stores over the next three years. This move is part of its effort to shut down a “significant” number of underperforming locations across the U.S. in response to these challenges.
In October, the company, which has been struggling with competition from rivals like Amazon, announced plans to close at least 1,200 stores over the next three years. (istock / iStock)
Sycamore Partners, a private equity firm that specializes in retail and consumer investments, has a track record of acquiring distressed retailers for profit; among them were brands such as Staples, Talbots and Nine West.
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FOX Business’ Daniella Genovese and Reuters contributed to this report.
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Sycamore will pay $11.45 per share
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Walgreens Boots Alliance (WBA) finalized a $10 billion deal, worth as much as $23.7 billion, with Sycamore Partners to go private after four months of negotiations, the companies announced Thursday.
Sycamore is a New York-based private equity firm that specializes in retail business investments. It has invested in brands like Staples, Ann Taylor Loft, Aéropostale, and Express.
Walgreens entered into a definitive agreement to be acquired by an entity affiliated with Sycamore, the company said in a statement late Thursday. Shareholders will receive a total of $11.45 per share in cash, or $10 billion, at the closing of the Sycamore transaction, the statement said. The additional value in the deal comes from an added $3 in future monetization of the company’s debt and equity interest in VillageMD.
“Throughout our history, Walgreens Boots Alliance has played a critical role in the retail healthcare ecosystem,” CEO Tim Wentworth said in the statement. “We are focused on making healthcare delivery more effective, convenient and affordable as we navigate the challenges of a rapidly evolving pharmacy industry and an increasingly complex and competitive retail landscape.”
“While we are making progress against our ambitious turnaround strategy, meaningful value creation will take time, focus and change that is better managed as a private company,” he added.
The deal includes all elements of Walgreens, including VillageMD, which the company is winding down its stake in, and a specialty pharmacy unit.
It also includes the Alliance Boots business, which was acquired in 2014 and is one of the company’s strongest assets.
Walgreens pharmacy benefit manager (PBM) is also part of the deal. It, too, has been deemed a strong asset by investors, but it never captured significant market share against the three largest PBMs: UnitedHealth’s Optum RX (UNH), CVS’s Caremark, and Cigna’s Express Scripts (CI).
Walgreens stock soared more than 5% in after-hours trading after it announced it was preparing to exit the public markets.
The stock climbed when the deal was first reported in December as investors looked for a shake-up. The company has been downgraded by a few firms and has a majority of Hold ratings — 11 total — as of this week.
Walgreens, valued at more than $100 billion in 2015, has dropped in the past couple of years to under $10 billion as it struggled to prove its value in the growing e-commerce environment. For fiscal year 2024, Walgreens reported revenue of $147 billion, up 6% year over year. But the company also reported a loss per share of $10.
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Walgreens Sells Itself to Private Equity Firm in $10 Billion Deal
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Shares of Walgreens Boots Alliance have lost about half their value in the past year, as the chain has faced pressure in its retail and pharmacy businesses.
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