Walgreens Boots Alliance's ($WBA) potential take-private deal with Sycamore Partners is likely to face numerous obstacles and has a less than 25% likelihood of materializing, as stated in a Deutsche Bank note e-mailed on Wednesday. The drugstore operator is currently in negotiations to sell itself to the private equity firm in a transaction that could conclude by early 2025, as reported by The Wall Street Journal, citing sources close to the matter.
In separate communications sent to MT Newswires on Wednesday, Sycamore refrained from commenting on the report while Walgreens echoed its policy of not discussing 'rumors or speculation' regarding its operations. Following the announcement, Walgreens shares fell by 7.2% in late-afternoon trading on Wednesday after experiencing an 18% rise in the previous session.
The stock value has plummeted nearly 63% this year, a decline attributed to mounting pressures on both its pharmacy and retail sectors. Deutsche Bank analyst George Hill pointed out, 'We see many challenges to getting a Walgreens take private across the goal line,' highlighting issues such as the company's significant debt, headwinds within the retail pharmacy sector, and Sycamore's likely difficulty in successfully executing the transaction.
In October, Walgreens reported adjusted net earnings of $0.39 per share for its fiscal fourth quarter, a decrease from $0.67 in the same period last year, although sales did rise by 6% to reach $37.55 billion. For fiscal 2025, the company anticipates adjusted earnings per share (EPS) ranging from $1.40 to $1.80, coupled with expected sales between $147 billion and $151 billion. At that time, Walgreens outlined plans to shutter approximately 1,200 stores over the next three years, with around 500 closures projected for 2025.
'In fiscal 2025, we are focusing on stabilizing the retail pharmacy by optimizing our footprint, controlling operating costs, improving cash flow, and continuing to address reimbursement models to support dispensing margins and preserve patient access for the future,' remarked Chief Executive Tim Wentworth in a statement dated October 15. Hill of Deutsche Bank also noted that this isn't the first time a take-private interest in Walgreens has surfaced.
In 2019, private-equity behemoth KKR reportedly extended a nearly $70 billion offer for the company. 'The transaction would be a significant undertaking for mid-market Sycamore and could necessitate the sponsor seeking equity partners to facilitate the deal's completion,' Hill commented. 'In short, we see a less than 25% likelihood of a deal being finalized and believe the shares are overvalued.' Walgreens is scheduled to announce its first-quarter results on January 9.
A year prior, the company reported an adjusted EPS of $0.66 on total sales of $36.71 billion. Price: 9.80, Change: -0.62, Percent Change: -5.95.