Dive Brief:
Walgreens has entered into a definitive agreement to be acquired by private equity firm Sycamore Partners and leave the public markets, the financially struggling retail and pharmacy chain said Thursday.
The private equity firm will pay $11.45 per share in cash for Walgreens, giving the company an equity value of about $10 billion.
But shareholders could earn another $3 per share based on proceeds from a potential sale of primary care chain VillageMD, according to a press release. The deal is expected to close in the fourth quarter.
Dive Insight:
The total value of the transaction could be nearly $24 billion, including debt and future payouts.
The purchase also includes a 35-day period where Walgreens can solicit additional proposals. But given the deal’s potential size and complexity, a competing bid likely wouldn’t be successful, Leerink Partners analysts said in a Thursday note.
Rumors of the Sycamore sale, which could end Walgreens’ nearly 100-year run as a public company, have been circulating for months.
The deal isn’t surprising, given that Walgreens’ core retail pharmacy business is in “drastic need of changes” that would be challenging to undertake on the public markets, according to a Thursday note by TD Cowen analysts Charles Rhyee and Lucas Romanski.
The company’s share price has plummeted over the past decade as Walgreens faces lower prescription reimbursements and heightened retail competition. In first quarter results released in January, Walgreens reported an operating loss of $245 million compared to a loss of $39 million in the prior-year period.
The retailer has embarked on a turnaround plan, which included cutting costs and reducing its store footprint. In the fall, Walgreens said it would close about 1,200 stores over the next three years, after CEO Tim Wentworth warned its 8,700 U.S. locations were underperforming.
“While we are making progress against our ambitious turnaround strategy, meaningful value creation will take time, focus and change that is better managed as a private company,” Wentworth said in a statement. “Sycamore will provide us with the expertise and experience of a partner with a strong track record of successful retail turnarounds.”
Walgreens had also walked back a planned pivot to health services. Before the Sycamore deal, the retailer said in the summer it was considering a sale of VillageMD, a primary care chain that received billions of dollars in Walgreens’ investment.
The company’s U.S. Healthcare segment reported an operating loss of $325 million in the first quarter, even as VillageMD and specialty pharmacy business Shields Health Solutions saw improved performance.
Walgreens will report second-quarter financial results on April 8.
