Pharmacy giant Walgreens Boots Alliance shifts ownership to private equity firm, raising questions about the future of Boots UK.
Pill Popping Pharmacy Goes Private: Walgreens' Centuries-Long Public Streak Ends with Sycamore Partners Buyout
Hey there! Guess what? Walgreens Boots Alliance (WBA) is saying "so long" to being a publicly traded company, as they've struck a deal with private-equity bigshot, Sycamore Partners. Yep, you heard it right – they're going private.
So, what's the story behind this breakup? Well, Sycamore agreed to pay a whopping $11.45 a share, which is around a 30% premium compared to the price before the acquisition rumors surfaced in December. That calculates to a valuation of $23.7 billion when you include debt. Billionaire, Stefano Pessina, Walgreens' executive chairman and largest shareholder, will still hang onto a "substantial chunk" of the company.
But don't worry, this romantic farewell doesn't mean Pessina will be skipping off into the sunset without a care in the world. He's spent half a century building a pharmacy empire stretching almost three times the size of the Roman Empire! After turning around and expanding his dad's struggling pharmaceutical wholesaler, he merged it with UniChem in 1997 and snapped up Boots in 2006. This union became the target of Walgreens in 2014, creating a conglomerate that once boasted a market value over $100 billion. However, the modern-day Amazon looming on the horizon quickly started nibbling away at Walgreens' non-medical revenues.
But, wait! Just because Walgreens is getting sold doesn't mean its problems vanish with the wind. Experts say Amazon and "big-box retailers" Are the real culprits behind Walgreens' woes, along with stinging "low prescription drug reimbursement rates" in the US. Despite Sycamore's strong track record of successful retail turnarounds, history shows that retail's "cemetery" is filled with "once-dominant retailers" that took a nosedive after being bought by private equity firms. The fundamental problems that led to this acquisition won't magically disappear when the deal goes through.
Leveraged Takeover: Boosting Interest Rates and Debt Woes
To make matters worse, Sycamore is planning on using up to $12 billion of debt to push through the acquisition. If they're assuming a 10% interest rate, Walgreens will see its interest payments doubled – yikes! With interest payments alone gobbling up a third of its current operating profit, it's safe to say Walgreens' "miserable decade" won't be reversed anytime soon.
Boots' Superior Performance and Uncertain Future
Despite these gloomy prospects, the sale could potentially pave the way for Boots to "Be relisted or sold out from under its parent," as some analysts predict. Why? Since it doesn't make much sense for a US retailer to maintain a UK-centric pharmacy, especially with Boots showing signs of strength. The UK-based retailer posted 8.1% like-for-like sales growth in the last quarter and has seen fifteen consecutive quarters of rising market share. With all these successes under its belt, one might question whether Sycamore's best bet isn't to just let Boots remain part of the overall group.
Now you're all caught up on the latest chapter in the dramatic tale of Walgreens and Boots. Get ready for unrestrained financial insights, expert analysis, and much more by subscribing to our website's magazine. Stay ahead of the game and stay informed!
Investors might find it interesting to know that the private-equity firm, Sycamore Partners, plans to increase Walgreens' debt significantly to fund the acquisition, potentially leading to increased interest payments that could strain the company's finances.
Moreover, despite Walgreens' sale to Sycamore Partners, there are predictions that Boots, the UK-based pharmacy under the conglomerate, could be separated and relisted or even sold, given its strong performance in the past quarters.
