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.
The drugstore giant’s stock jumped over 7% in trading on Friday after the news that the company was preparing to exit the public markets.
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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.
An interior view of a Boots store in London. REUTERS/Hannah McKay ·REUTERS / Reuters
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 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.
The take-private deal marks an end to Walgreen’s presence in the stock market, just shy of 100 years. It first went public in 1927, 26 years after the first store opened in 1901. The company suspended its quarterly dividend to stockholders for the first time in its history this January as it continued negotiations with Sycamore.
“This change in capital allocation is aimed at strengthening WBA’s balance sheet by reducing debt over time and improving free cash flow, as the company works toward achieving a retail pharmacy-led turnaround underpinned by a sustainable economic model. The company’s cash needs over the next several years, including with respect to litigation and debt refinancing, were important considerations as part of the decision to suspend the dividend,” the company said in a statement in January.
The deal reflects an ongoing decline in publicly traded retail pharmacy giants, as Walgreens follows the path of Rite Aid, which went private last year after climbing out of bankruptcy.
With more online competition and reimbursement pressures from insurers and pharmacy benefit managers, only vertically integrated healthcare companies, like CVS (CVS), and grocery store pharmacies, like Walmart (WMT) and Kroger (KR) — entities that rely majorly on other sources of income — can survive.
A Walgreens retail store in Boston. (AP Photo/Charles Krupa) ·ASSOCIATED PRESS
The decline for standalone retail pharmacies began about 10 years ago, according to Jefferies analyst Brian Tanquilut.
“If you think about what that came from, it’s Amazon (AMZN) eating into the front end of store market share, the dollar stores have grown quite significantly in terms of footprint, and they’ve [presented] a healthy level of competition for the retail pharmacies. And then the grocery store chains have also … rolled out the pharmacies they operate,” Tanquilut said.
Retailers have also faced increased competition in recent years from direct-to-consumer online platforms like Hims & Hers (HIMS) and Amazon Pharmacy, which have made it easier to access some prescriptions. It’s why, despite Walgreens’ efforts to turn around the company under CEO Tim Wentworth’s leadership by shuttering stores in low-performing markets, it was unable to compete and avoid the take-private deal.
Mizuho Securities healthcare expert Jared Holz noted that it wasn’t so much an end of an era for retail pharmacies as it was just another retailer having to come to terms with the online environment.
“They’ve probably tried to emulate CVS as much as they can. And they are subscale in … pretty much all of the non-retail elements of the business,” Holz said.
Other analysts have similarly noted that many of Walgreens’ acquisitions or investments lagged CVS or were in areas that didn’t pan out as expected.
“There are little synergies between Walgreens’ three major business lines (the U.S. Retail Pharmacy, International, and U.S. Healthcare (VillageMD/Summit). Whether public or private, the focus for Walgreens is to streamline operations and to pay down debt as the company continues to struggle to generate meaningful cash flow,” wrote BofA Securities analyst Allen Lutz in a recent note to clients prior to the deal.
He similarly focused on how Walgreens failed to truly compete with CVS.
“Overall, the retail pharmacy business is likely to remain under structural pressure, given Walgreens’ position in the pharmacy supply chain and lack of a direct relationship with a PBM or health plan. We maintain our Underperform rating,” Lutz wrote.
Correction: A previous version of this article misstated the size of the deal. We regret the error.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. That includes GLP-1s, of course. Follow Anjalee on social media platforms X, LinkedIn, and Bluesky @AnjKhem.
