US firm McKesson is reportedly exploring a sale of its LloydsPharmacy chain which has been struggling with rising costs and government funding cuts.
According to Sky News, McKesson has hired bankers at Barclays to explore a sale of its UK operation with prospective bidders being sounded out in recent weeks.
McKesson also owns AAH, the UK’s largest pharmaceutical wholesaler, Masta, a travel clinic chain, and the John Bell & Croyden pharmacy business. The report stated that it was unclear whether all the UK subsidiaries are included in the US firm’s sale plan.
A source quoted by Sky News suggested that the entire UK operation could command a price tag of around £400m.
McKesson entered the UK via its $8bn acquisition of German group Celesio in 2014. This made it the biggest competitor to Boots and its parent company, Walgreens Boots Alliance.
LloydsPharmacy operates a network of more than 1,400 sites across the UK. However, its most recent accounts for the year to 31 March 2019 show the chain’s sales fell 8.5% to £1.98bn with an operating loss of £142m as it restructured to cope with the tough conditions in the sector.
LloydsPharmacy has closed hundreds of outlets in recent years, blaming government funding cuts and higher operating costs. At the end of 2020, it called for health centre landlords to recognise the impact of reduced footfall and renegotiate unsustainable rents or risk further closures of unviable pharmacies.
And last year, McKesson revealed that sales in its European division had been falling due to the “negative impact of the pandemic on the pharmaceutical distribution and retail pharmacy businesses.”
McKesson has declined to comment on the sale report.
NAM Implications:
- Rising costs and government funding cuts were always an issue…
- …but Lockdown was probably the final straw for McKesson.
- i.e. End 2020 requests for rent cuts.
- Issue will be whether Private Equity will be the final owners…
- …given the likelihood that competition laws would rule out a combination with Boots.
- i.e. a new focus on financial performance, closure of unprofitable outlets, etc.
