By Sabrina Valle and Abigail Summerville
NEW YORK (Reuters) -Walgreens Boots Alliance will be taken private by Sycamore Partners for $10 billion, the firms said on Thursday, closing out nearly a century of trading on public markets for the U.S. pharmacy giant.
The price is a fraction of the $100 billion the second-largest U.S. pharmacy chain was worth a decade ago. Its fortunes collapsed as drug margins fell and as consumers turned to cheaper rivals such as Amazon and Walmart to fill their prescriptions and purchase toiletries.
And when rivals diversified into insurance or prescription management, Walgreens invested billions of dollars in buying other pharmacy chains such as European giant Alliance Boots despite the trend away from in-store shopping.
Sycamore will pay $11.45 per share, a premium of 8% to Walgreens’ closing price of $10.60 on Thursday. Shares of the company rose nearly 6% in extended trading.
Walgreens shareholders could also receive an additional $3 in cash from future monetization of the company’s debt and equity interests in primary-care provider VillageMD.
The company’s market capitalization has dropped 90% since 2015 to $9.3 billion on Thursday, with debt and lease obligations ballooning to almost $30 billion.
The transaction has a total value of around $23.7 billion including payouts and debt, according to Leerink Partners investment bank.
The final acquisition price was calculated by Sycamore considering the worst-case scenario, based on the minimum price it could recover if assets had to be split for a sale or to be run separately, a person close to the discussions said.
“You have a business that is shrinking, and then you layer on losses and cash burn, all of that was the perfect recipe for what we are seeing today,” said Brian Tanquilut, a healthcare services research analyst at Jefferies.
Sycamore, a private equity firm that specializes in retail and consumer investments, has a track record of acquiring distressed retailers for profit including brands such as Staples, Talbots and Nine West.
Its past approach has involved selling the companies’ most valuable assets, and reducing costs in the remaining operations through store closures and other measures, with savings often used to draw dividends and not necessarily aimed at growth.
“Going private makes sense on paper,” said Ann Hynes, an analyst with Mizuho Bank, adding that Walgreens’ operational challenges would likely better be handled without commitments to shareholders.
Walgreens Boots Alliance CEO Tim Wentworth said in a statement that the company was making progress on its turnaround strategy, but meaningful value creation would take “time, focus and change that is better managed as a private company”.
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