Walgreen Boots Alliance will become privately held in a takeover by the investment firm Sycamore Partners for more than $10 billion, the companies announced Thursday.
Sycamore’s agreement to pay $11.45 per share is 29% above where the stock price was trading in December and represents an equity value of around $10 billion, the companies confirmed. Though not known in healthcare industry circles, Sycamore specializes in consumer, distribution and retail-related investments, the private equity firm says on its website.
The deal, which had been rumored for months, calls for Walgreens shareholders to receive $11.45 per share in cash at closing of the Sycamore purchase and “one non-transferable right to receive up to $3 in cash per WBA share “from the future monetization of WBA’s debt and equity interests in VillageMD, which includes the Village Medical, Summit Health and CityMD businesses,” the companies said of Walgreens primary care businesses. The total value of the deal, including the $10 billion in equity value, is more than $23 billion when debt and other items are included, the companies said.
“Leveraging (Walgreens Boots Alliance’s) healthcare expertise and Sycamore’s established leadership in retail and consumer services, WBA will be better positioned to become the first choice for pharmacy, retail and health services,” the companies said. “The company will continue to operate under Walgreens, Boots and its trusted portfolio of consumer brands. WBA will maintain its headquarters in the Chicago area and continue contributing to the communities in which it operates, with the goal of positively impacting the health outcomes and overall well-being of its customers, patients, communities and team members.”
Walgreens stock has been plummeting in recent years in part due to a disastrous rollout of clinics attached to stores. That has led the company to close hundreds of stores to reduce debt an stem financial losses.
Under former chief executive Roz Brewer, Walgreens spent billions of dollars investing in and operating physician-staffed clinic operator VillageMD.
Walgreens invested more than $6 billion in VillageMD under Brewer to take a controlling stake, but the company has already scaled back dramatically on the expansion of doctor practices and clinics the company opened attached to Walgreens. In 2020, Walgreens said it planned to open 500 to 700 “Village Medical at Walgreens” physician-led primary care clinics in more than 30 U.S. markets over five years, with the “intent to build hundreds more thereafter.”
But Walgreens CEO Tim Wentworth, who replaced Brewer in October 2023, said a year ago that Walgreens and partner VillageMD have slowed the number clinic openings in part because the operators haven’t been able to fill their “patient panels,” which are a certain number of individual patients under the care of a specific provider.
Meanwhile, Walgreens, which has been closing stores and cutting costs, reported a net loss of $265 million, or 31 cents a share in its fiscal first quarter ended Nov. 30 of last year. That compares to a year-ago loss of $67 million or 8 cents a share.
It’s unclear whether Walgreens will ultimately shed any businesses under new ownership. On Thursday afternoon, Wentworth said the company is focused on “making healthcare delivery more effective, convenient and affordable as we navigate the challenges of a rapidly evolving pharmacy industry and an increasingly complex and competitive retail landscape.”
News of the Walgreens sale comes as rival CVS Health has remained committed to keeping all of its businesses including its retail pharmacies and growing Oak Street senior health center operation. CVS also owns the nation’s third largest health insurance company in Aetna and one of the nation’s largest pharmacy benefit management (PBM) companies in Caremark. Owning a health insurer and PBM allows those CVS companies to buy services from its provider operations at discounts for health plan enrollees as well as employer and government clients.
Wentworth indicated Walgreens would be forging ahead with its turnaround strategy.
“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 added. “Sycamore will provide us with the expertise and experience of a partner with a strong track record of successful retail turnarounds. The WBA Board considered all these factors in evaluating this transaction, and we believe this agreement provides shareholders premium cash value, with the ability to benefit from additional value creation going forward from monetization of the VillageMD businesses.”
For its part, executives at Sycamore partners said they were committed to Walgreens and its brands as well as the executive team currently running the company.
“For nearly 125 years, Walgreens, and for 175 years, Boots, along with their portfolio of trusted brands, have been integral to the lives of patients and customers. Sycamore has deep respect for WBA’s talented and dedicated team members, and we are committed to stewarding the Company’s iconic brands,” said Stefan Kaluzny, Managing Director of Sycamore Partners. “This transaction reflects our confidence in WBA’s pharmacy-led model and essential role in driving better outcomes for patients, customers and communities.”
The transaction is expected to close in the fourth quarter of this year, pending approval by regulators and Walgreens shareholders. The closing will also bring an end to Walgreens as a publicly-traded company and will therefore no longer listed on the Nasdaq Stock Market.
