Walgreens is reportedly looking to take itself private in a deal with Sycamore Partners, sending the stock nearly 20% higher Tuesday.
The Wall Street Journal reported that the beleaguered drugstore giant and the private equity firm are discussing a deal that could be completed early next year. Walgreens Boots Alliance (WBA) told CNN it doesn’t comment on rumors and speculation.
Details of the potential deal are still being ironed out. Since Sycamore focuses on smaller deals it “would likely sell off pieces” of Walgreens to make the acquisition more financially manageable, the Journal said.
Sycamore had no comment on the Journal’s report.
Similar to rivals CVS and Rite Aid, Walgreens has closed hundreds of stores and struggled with declining prescription reimbursements in recent years, sending its value plummeting to just around $8 billion from $100 billion a decade ago. Walgreens’ shares are down 60% for the year.
In October, Walgreens announced was closing approximately 1,200 locations. About one in seven Walgreens currently open will close its doors by 2027. It currently has nearly 9,000 locations across the US.
Those closures represent a significant escalation from a June announcement when the company announced it was shutting 300 underperforming locations as part of a multiyear optimization program under CEO Tim Wentworth. At the time, the company had said about a quarter of Walgreens stores were unprofitable, and the chain promised “imminent” changes.
Selling to private equity “would be an elegant solution for extracting value for investors,” according to Neil Saunders, managing director of GlobalData. He added that Sycamore could sell off UK chain Boots to “maximize their return.”
“Walgreens is a big company with big problems, and this would be a longer-term investment rather than a way to make a quick buck,” Saunders wrote in a note Tuesday. “Cuts would most certainly be on the agenda, but the pathway to grow would be more challenging as the healthcare, pharmacy and retail sides of the business all have inherent problems that are not easily soluble.”
Walgreens’ closures come amid a difficult time for drugstore chains, which are being hammered on a few fronts. The chains have struggled in recent years because of lower reimbursement rates for prescription drugs and new competition from Amazon, causing their profits to decline.
The front end of drugstores, where snacks and household staples are sold, also face pressure from larger competitors, including Target. Even Dollar General’s growth has hurt drugstore chains in rural areas.
