Shares of Walgreens (WBA) surged more than 20% on Tuesday following a report by The Wall Street Journal that the pharmacy chain is in discussions to potentially sell itself to the private equity firm Sycamore Partners. According to sources cited by the Journal, the deal could be finalized early next year, although Walgreens has not officially commented on these negotiations.
This news emerges at a challenging time for Walgreens, which has faced a significant stock value decline of nearly 60% this year, prior to the recent uptick. The company has been grappling with multiple issues including the post-Covid economic landscape, changes in leadership, reduced pharmacy reimbursements, and difficulties in expanding into healthcare services. These factors have led to Walgreens missing Wall Street’s earnings expectations for two consecutive quarters.
In response to these challenges, Walgreens announced in October plans to close approximately 1,200 of its drugstores over the next three years, with 500 closures slated for fiscal 2025 alone. With around 8,700 locations in the U.S., the company identified that a quarter of these are unprofitable. Additionally, Walgreens has taken steps to retreat from its aggressive expansion into primary care by reducing its investment in VillageMD.
The appeal of Walgreens as a private equity target is not new; in 2019, KKR proposed a buyout valued at approximately $70 billion, which would have been one of the largest take-private deals in history. This move underscored the pharmacy giant’s enduring attractiveness to investors, even amid its recent challenges. The interest from Sycamore Partners reflects a broader trend where private equity firms see value in acquiring established retail entities to streamline operations, possibly sell off assets, or reposition the business for better market performance.
This potential acquisition by Sycamore could represent a significant pivot for Walgreens, aiming to leverage private equity’s strategic and financial resources to navigate through its current operational and market challenges.
Price Action: WBA has seen a significant intraday surge, with shares trading at $10.71, representing a 21% increase. However, this uptick contrasts with the company’s overall decline over the past year, as WBA has dropped 54% year-over-year.
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