Following months of speculation, it was announced last night that Walgreens Boots Alliance (WBA) has agreed on a deal to be acquired by US private equity firm Sycamore Partners.
The transaction will see Sycamore pay $11.45 a share to take WBA private after a century-long run as a public company, with a break-up of the business now likely. The offer is a nearly 30% premium on the stock price before deal talks were first reported in December, giving the business an equity value of about $10bn.
WBA’s shareholders could also be paid an extra $3 a share based on the sale of the group’s primary care business VillageMD, which includes the Village Medical, Summit Health and CityMD businesses. Including debt, the total value of the transaction is worth up to $23.7bn.
While not confirmed, Sycamore is expected to hold on to the US retail business and sell or spin off the remainder, which includes Boots in the UK.
As part of the deal, Stefano Pessina, its executive chair who created WBA by orchestrating a merger of Walgreens and Alliance Boots in 2014, will maintain a “significant” minority shareholding in the business. He currently holds a 17% stake.
The move follows a torrid period for WBA, which has seen its share price plummet over the last few years following troubles with its US retail business due to weak consumer spending and low reimbursement rates for filing prescriptions. In contrast, Boots in UK has undergone a revival since the pandemic after refreshing its stores and improving its price competitiveness.
In recent years, WBA has been expanding its presence in the US healthcare market, spending $5.2bn in 2021 to take a majority stake in the VillageMD network of primary-care offices. VillageMD then paid nearly $9bn for Summit Health-City MD, a US urgent care and physicians’ group. However, after mixed results, WBA has been trying to offload VillageMD for more than a year.
The group recently confirmed it will shut 1,200 of its 8,000 Walgreens pharmacy stores in the US as part of a turnaround plan instigated by CEO Tim Wentworth. He has unveiled a series of changes since taking on the job at the end of 2023, including the removal of multiple mid-level executives and a $1bn cost-cutting programme.
Analysts noted that the private equity buyout will give WBA more flexibility to make changes to improve its business without worrying about Wall Street’s reaction.
Commenting on the Sycamore deal, Wentworth said: “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. Sycamore will provide us with the expertise and experience of a partner with a strong track record of successful retail turnarounds.
“The WBA Board considered all these factors in evaluating this transaction, and we believe this agreement provides shareholders premium cash value, with the ability to benefit from additional value creation going forward from monetization of the VillageMD businesses.”
NAM Implications:
- Others will explore cause & effect…
- But suppliers will focus on changes at Walgreens and Boots…
- Cutbacks of the Walgreens estate will continue, but probably at a faster pace…
- …to reach a core estate of profitable outlets.
- Meanwhile, the Boots turnaround will continue…
- …while making it ready for sale or reflotation.
- A sale of the business would probably be faster…
- Much depends on the new owners’ reaction to a detailed examination of Walgreens’ business.
- And the need to realise cash from a possible Boots disposal…
