Shares of Walgreens Boots Alliance (NASDAQ:WBA) experienced a 5% surge and trading was temporarily halted due to volatility following news that the company is engaged in discussions with Sycamore Partners regarding a potential buyout. This deal could potentially remove the pharmacy chain from the public market, where it has seen a consistent decline in share value over nearly a decade.
The ongoing negotiations, if successful and not derailed, could lead to a finalized agreement early next year, according to a report from the Wall Street Journal, citing sources. Walgreens, once valued at over $100 billion in 2015, now has a market value of approximately $7.5 billion. The company's stock has fallen nearly 70% this year, under the weight of challenges in both its pharmacy operations and retail segments.
Sycamore Partners, a New York-based private-equity firm known for its retail and consumer investments, typically engages in smaller transactions. However, acquiring Walgreens would represent a significant undertaking for the firm, which may consider selling parts of the business or seeking partnerships to facilitate the deal.
Walgreens has a storied history, expanding over 12 decades to become a familiar presence in neighborhoods across the U.S., Latin America, and Europe. The company boasts over 12,000 stores and has recently invested in healthcare clinics to broaden its services.
The company's expansion included the ambitious acquisition of Alliance Boots, a European pharmacy giant, in 2012, with the full takeover completed in 2015. However, this expansion has encountered financial difficulties, leading to considerations of selling the Boots chain.
Walgreens and its chief competitor, CVS Health (NYSE:CVS), have struggled with stagnant margins in the prescription drug dispensing business, contending with payment pressures from pharmacy-benefit managers and a challenging retail environment dominated by e-commerce platforms like Amazon (NASDAQ:AMZN).
Unlike CVS, which diversified by acquiring a pharmacy-benefit manager and an insurance company, Walgreens has maintained a focus on its retail pharmacy operations. Tim Wentworth, who became CEO in October 2023, has initiated efforts to revitalize the company, including store closures and scaling back its primary-care business.
The possibility of a private-equity buyout has been a topic of speculation for Walgreens, with its size previously viewed as a barrier. In 2019, KKR reportedly approached Walgreens with a $70 billion offer, which would have been one of the largest take-private deals if it had materialized.
The private-equity sector has shown less interest in retail acquisitions following several high-profile failures, such as Toys "R" Us, which have made financing such deals more challenging. Sycamore Partners, known for its acquisition of Staples in 2017 and interest in Kohl's (NYSE:KSS) in 2022, currently holds investments in retail brands including Ann Taylor Loft, Aéropostale, and the department store Belk.
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