Walgreens Boots Alliance's potential take-private deal with Sycamore Partners is expected to encounter numerous obstacles, resulting in a probability of less than 25% for successful execution, as noted by Deutsche Bank in a recent email. The drugstore giant is currently in talks with the private-equity firm regarding a potential sale, which could finalize by early 2025, as reported by The Wall Street Journal on Tuesday. In response to the ongoing negotiations, Walgreens shares fell by 7.2% in late-afternoon trading on Wednesday, following a significant 18% increase in the previous session.
Year-to-date, the stock has experienced a staggering decline of nearly 63%. The Wall Street Journal attributed this downturn to mounting pressures on the company’s pharmacy and retail segments. Deutsche Bank analyst George Hill highlighted several significant challenges in achieving a successful private sale of Walgreens, citing its considerable debt, difficulties within retail pharmacy operations, and Sycamore’s potential struggles to finalize such a transaction.
In a letter to clients, he detailed these points, stressing that “we see many challenges to getting a Walgreens take private across the goal line.” In the fiscal fourth quarter, Walgreens reported adjusted net earnings of $0.39 per share, a drop from $0.67 the previous year, while sales increased by 6% to $37.55 billion.
As they look ahead to fiscal 2025, Walgreens anticipates adjusted earnings per share to range between $1.40 and $1.80, with projected sales of $147 billion to $151 billion. The company also recently disclosed plans to shutter approximately 1,200 stores within the next three years, with an estimated 500 closures expected in 2025.
Tim Wentworth, Chief Executive, stated, “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.” Deutsche Bank’s Hill remarked that this is not the first scenario involving a take-private initiative targeted at Walgreens.
In 2019, private-equity firm KKR reportedly proposed an offer of nearly $70 billion for the company. Hill added, “The transaction would be a big fish to swallow for mid-market Sycamore and could require the sponsor to find equity partners to get the deal to completion.” He concluded by suggesting that the likelihood of a deal materializing is low, estimating it at less than 25%, while expressing concern that Walgreens shares appear overvalued. Walgreens is expected to disclose its first-quarter results on January 9.
Last year, the retailer recorded adjusted earnings per share of $0.66 on sales totaling $36.71 billion..