The Walgreens Boots Alliance will keep Sycamore Partners private for $10 billion, the buyout company said Thursday, closing almost a century of deals in the open market of the US pharmacy giant.
Sycamore paid $11.45 per share, with a premium of $10.60 on Thursday at 8%. The company's shares rose nearly 6% in expanded transactions.
Walgreens shareholders can also receive an additional $3 in cash from the company's debt and future monetization of the stock at Villagemd.
The company's market value has shrunk from nearly $100 billion a decade ago to over $9 billion, with drug price margins falling, and consumers shifting to cheaper rivals between Amazon and Walmart to fill prescriptions and purchasing toiletries.
And when rivals diversified into insurance or prescription management, Walgreens invested billions of billions to buy other pharmacy chains despite trends away from in-store shopping.
As a result, the second-largest US pharmacy chain's debt and lease obligations have swelled to nearly $30 billion.
“You have a business that's shrinking, and you're layering losses and cash burning. It was all the best recipes for what we're seeing today,” said Brian Tankiroot, healthcare services research analyst at Jeffries Bank.
Sycamore Partners, a private equity firm specializing in retail and consumer investment, has a track record of acquiring distressed retailers for profit. Among them were brands such as Staple, Talbot and Nine West.
That past approach involves selling the company's most valuable assets, reducing the costs of remaining operations through store closures and other measures, and savings are often used to extract dividends, not necessarily intended for growth.
“Going private makes sense on paper,” added Anne Hines, an analyst at Mizuho Bank, adding that Walgreens' operational challenges could possibly be handled without a commitment to shareholders.
downfall
Walgreens is struggling with a decline in cash flow, with more than half of its $7 billion net debt coming next year.
The company has closed thousands of stores and has launched a $1 billion cost-cutting program under CEO Tim Wentworth.
Currently, it employs 312,000 people in 12,000 stores in eight countries. According to its website, four years ago there was a sharp decline from 450,000 employees and 21,000 stores in 25 countries.
Many of the company's failures are under former CEO Stefano Pessina, the largest single shareholder, and at the helm of Walgreens' market capitalization reduced to less than $50 billion at the helm of 2007-2014.
In 2012, Walgreens announced a $5.2 billion investment in primary care provider Villagemd. It has proven to be cash drainage and is now a good candidate for Sycamore's exit.
Two years later, Walgreens signed a two-stage acquisition of Switzerland-based Alliance Boots, a pharmacy-led health and beauty group that analysts now consider as a candidate for a spinoff.
The company stuck to shopping even after Pessina, who snapped nearly 2,000 stores from its previous rival Rite Aid Corp. in 2018.
I also missed the opportunity. Top rival CVS has diversified its business beyond retail, including the acquisition of nearly $70 billion health insurance company Aetna in 2018, but Walgreens has stepped away from purchasing insurance company Humana.
