Walgreens Boots Alliance Inc Potential Buyout

Walgreens Boots Alliance Inc (NASDAQ:WBA) is reportedly in talks with private equity firm Sycamore Partners regarding a potential buyout, as reported by the Wall Street Journal on Tuesday. TD Cowen analysts have expressed uncertainty about the motives behind such a deal.

Analyst Insights

TD stated that while a buyout could be plausible, the effectiveness of a private equity firm's intervention in accelerating Walgreens' ongoing turnaround plan remains questionable. They believe that a private equity firm would need to achieve better results than management's current strategies for the U.S. Retail segment.

TD analysts suggested a prospective buyout price of $12 per share, which contributed to an 18% increase in Walgreens' share value on Tuesday, pushing it to $10.42.

Current Situation

As Walgreens engages in discussions with Sycamore Partners, a finalized agreement could potentially be reached by early 2025. Additionally, there may be plans to carve out the Alliance Boots UK business, which Walgreens had originally acquired in 2015.

Walgreens is currently facing challenges, including declining sales in both pharmacy and retail sectors, exacerbated by intense e-commerce competition and reduced consumer spending. The firm is implementing a turnaround plan aimed at cost reduction and improved cash flow.

TD indicated that any buyout would need to stem from the belief that the buyer can revitalize Walgreens' core U.S. retail business. The potential divestiture of Boots raised eyebrows, given the business’s robust free cash flow.

Stock Performance

TD currently rates Walgreens as Buy, with a target price of $14. However, shares have plummeted over 60% in 2024, largely due to weak consumer spending, ongoing inflation, and declining margins in pharmacy operations. In comparison, Walgreens had previously attempted a buyout in 2019, when its valuation stood at $55 billion. The company's current market cap is approximately $9 billion.