Walgreens to be bought by private equity for nearly $10B

Walgreens Boots Alliance, a company long entrenched in the retail pharmacy sector, has announced its acquisition by Sycamore Partners, a private equity firm. This move comes at a pivotal time for the company, which has been grappling with financial setbacks for several years. Walgreens disclosed that the acquisition deal is pegged at $11.45 per share, amounting to an equity value nearing $10 billion, with potential additional payouts adding up to $3 per share under specific conditions.

Transitioning to a private entity could offer Walgreens the latitude to implement significant business reforms without the scrutiny of the stock market. As a public entity since 1927, the decision marks a profound shift. The organization, first established in 1901, has been contending with numerous challenges, such as low prescription reimbursements and increased costs, alongside theft and a customer base that is increasingly price-conscious.

The company is in the midst of a strategic plan to shutter 1,200 out of its approximately 8,500 U.S. stores. This comes after already having reduced its U.S. store count by around 1,000 following the acquisition of certain Rite Aid locations in 2018. In addition, as of last August, Walgreens began reassessing its aggressively expanded U.S. healthcare operations and hinted at potentially selling portions or all of its VillageMD clinic business, just a short time after committing significant investments in its expansion.

Walgreens’ shares have seen a sharp drop, losing nearly two-thirds of their value over the past year. The sale price includes a premium of almost 30% over the value when rumors of the deal initially emerged. With debt factored in, the comprehensive value of the transaction is estimated to be slightly under $24 billion. Earlier this year, Walgreens noted progress in enhancing prescription reimbursement systems.

In efforts to safeguard cash reserves, Walgreens also announced earlier in the year it would pause its quarterly dividend—a tradition maintained for over 90 years. The company has also been selling parts of its stake in Cencora to boost liquidity and help reduce debt. As noted by Leerink Partners analyst Michael Cherny, the emphasis is firmly on improving cash flow regardless of its public or private status. Cherny stated that without bolstering cash flow, potential value realization remains elusive.

Alongside its domestic operations, Walgreens Boots Alliance oversees nearly 3,700 international outlets spanning the United Kingdom, Mexico, Thailand, and Ireland. This buyout aligns with the recent changes in the drugstore sector, with Rite Aid transitioning to a private company post-Chapter 11 bankruptcy restructuring in September. Major competitors still in the public sphere include CVS Health Corp., Walmart, and grocery chains such as Kroger, which operate pharmacies within their stores.