Walgreens Boots Alliance has reached an agreement to be acquired by private equity firm Sycamore Partners, marking a significant change for the long-struggling retailer.
The acquisition deal, valued at nearly $10 billion, offers Sycamore Partners a payment of $11.45 per share for Walgreens. This marks a strategic move for Walgreens, which seeks to rectify its financial trajectory after enduring years of monetary losses. Shareholders may receive an additional $3 per share if certain conditions are met, providing further incentives for their investment.
This shift to private ownership is expected to grant Walgreens more agility in making the necessary strategic adjustments without the pressures of pleasing public shareholders. The firm has already initiated substantial changes, including the planned closure of 1,200 out of approximately 8,500 U.S. stores. This follows a previous reduction of around 1,000 stores after the acquisition of some Rite Aid locations in 2018.
Founded in 1901, the Deerfield, Illinois-based company has faced numerous challenges, including thin prescription reimbursements, rising expenses, and inflation-driven consumer behavior shifts. These difficulties have prompted a review of its U.S. healthcare operations, which have expanded quickly, notably the VillageMD clinic business, a sector where potential sales are being considered.
The financial health of Walgreens has been a critical concern, exemplified by the 30% premium the current deal offers over the share price as of December, when acquisition rumors first circulated. However, the financial world observed Walgreens shares losing nearly two-thirds of their value last year, emphasizing the urgent need for a turnaround.
To bolster its financial status and cash reserves, Walgreens has taken steps such as suspending a dividend it had been issuing for over 90 years and reducing its stake in Cencora. This reflects a broader strategy to improve cash flow, a necessity whether the company continues as a public entity or becomes private, according to industry experts.
Walgreens operates about 3,700 international stores across the United Kingdom, Mexico, Thailand, and Ireland, highlighting its global presence despite its current challenges in the U.S. market. The acquisition also follows competitor Rite Aid’s emergence from bankruptcy, turning into a private entity last September. Remaining publicly traded rivals include CVS Health Corp, Walmart, and Kroger, all of which contain substantial pharmacy operations.
The acquisition by Sycamore Partners could pave the way for Walgreens to implement more profound changes aimed at financial recovery. As the retail landscape continues to evolve, this acquisition represents a potential turning point for Walgreens, offering a chance to stabilize its operations and regain competitive ground.
