Walgreens explores going private in what could be largest LBO in historyNovember 6, 2019
Walgreens Boots Alliance seems to be exploring the option to go private in a move which would potentially be the largest leveraged buyout in history. One of the firms that might be involved in this ground-breaking deal is KKR which has a history with Walgreens. In 2007, Walgreens along with Stefano Pessina, the executive chairperson, and other investors were bought by KKR.
Even after a two-part deal was announced on the part of Walgreens when they decided to acquire Alliance Boots in 2013, KKR stayed on as an investor. By 2015, KKR’s investment had quadrupled. For Walgreens Boots Alliance, this deal would be the perfect chance to leave the spotlight. Over the last year, shares of the company have seen a decline of 22%, with retail and pharmacy businesses owned by them facing most of the heat.
As their market capital totals to $55 billion, this deal would be expensive. Pessina, the now CEO of Walgreens, owns a 16% stake in the company give or take. The company’s outstanding debt amounts to about $17 billion according to the recent audit and will act as a complication in the acquisition deal. A number of deals to purchase retailers have caused bankruptcy for several big private equities including ‘Toys R Us’ and ‘Payless’. This is because they find themselves unable to make necessary investments amid changing retail habits.
Walgreens is one of the largest pharmacies in the world with almost 10,000 drugstores. Consumers seem to be inclined to purchase drugstore staple products like vitamins and shampoos online rather than going to a store. Insurers are, therefore, paying pharmacies lesser and lesser to fulfill prescriptions. To counter this, Walgreens has been cutting costs. They aim to shave off almost $1.8 billion by 2022. They have mentioned closing 200 stores within the USA and also 200 in the UK.
These challenges have forced frontrunners in the industry to run for cover under partnerships and consolidation. Just last year, a $69 billion deal saw CVS Health and Aetna combine their pharma benefit manager business and insurance platform. Walgreens has tried to join the bandwagon by trying to and failing to purchase AmerisourceBergen in 2018.
They also attempted this back in 2015, when Walgreens attempted to merge with Rite Aid in a deal that was worth $17.5 billion and would have brought 4,600 stores. Instead, at the end of it all, only 1,932 stores were acquired at a significantly lesser $4.27 billion.
With their work with investment bank Evercore, Walgreens is trying to manage a deal somehow. This increased the share value by 3% on Tuesday. Shares ended up closing at $61.21.