Walgreens' shares experience a boost upon rumors suggesting potential private acquisition.
According to the Wall Street Journal, there's talk of a deal between the struggling drugstore giant and a private equity firm, potentially wrapping up early next year. Walgreens Boots Alliance (WBA) brushed off the chatter, stating they don't comment on rumors and speculation.
The specifics of this potential deal are still under discussion. Given that Sycamore is known for smaller deals, they might offload sections of Walgreens to ease the financial burden of the acquisition, as reported by the Journal.
Sycamore kept mum about the Journal's report.
Walgreens has been battling challenges like closing hundreds of stores and dealing with dwindling prescription reimbursements for some time now. These challenges have led to a significant drop in its value, from $100 billion to approximately $8 billion over the past decade. For the year, Walgreens' shares have depreciated by 60%.
Issuing a statement in October, Walgreens announced plans to shutter approximately 1,200 outlets. By 2027, around one in seven existing Walgreens will be shutting down, leaving them with nearly 9,000 outlets in the U.S.
This latest wave of closures represents a significant escalation from their June announcement, when they declared they would close 300 underperforming stores as part of a multiyear optimization program under CEO Tim Wentworth. At that time, they acknowledged that around a quarter of Walgreens stores were unprofitable.
Neil Saunders, managing director of GlobalData, suggested that Sycamore could sell off the Boots UK chain to boost their profits. He expressed that this would be an effective way for investors to extract value from Walgreens.
In his note, Saunders expressed that Walgreens is a massive company dealing with significant issues, making this an investment for the long haul rather than a quick profit grab. He added that cuts would undeniably be on the table, but the path to growth would be challenging due to the complex problems plaguing the healthcare, pharmacy, and retail sectors of the business.
Walgreens' ongoing store closures occurred amid a challenging period for drugstore chains. These businesses have been grappling with lower prescription drug reimbursement rates, new competition from Amazon, and declining profits.
The retail side of drugstores, where snacks and household items are sold, is also facing pressure from larger competitors like Target. Even Dollar General's growth is impacting drugstore chains in rural areas.
Sycamore might consider divesting certain business segments of Walgreens to mitigate the financial strain of the acquisition, as proposed by analysts. Despite these challenges, investors viewing Walgreens as a long-term investment opportunity may still choose to engage in investing in the company, recognizing the potential for growth despite the complex issues it faces.
