Walgreens reportedly discussing sale of company to private equity firm
Private equity firm Sycamore Partners is in talks with Walgreens Boots Alliance to possibly acquire the financially challenged retail chain, according to an exclusive report early last week by The Wall Street Journal.
Citing people familiar with the matter, the Journal said the sale could be completed by early 2025 if the discussions are successful.
News of the potential sale sent Walgreens’ shares up from an opening price of $8.65 on Dec. 9 to a high of $11.30 on Dec. 10. Between the start of this year and last Tuesday, when the Journal reported on the possible deal, Walgreens’ share price had fallen nearly 70%.
Walgreens’ market value peaked at more than $100 billion in 2015 but had fallen to approximately $7.5 billion just before the Journal published its report.
Based in New York, Sycamore specializes in retail and consumer investments, according to the Journal. According to a person familiar with the talks, Sycamore would likely sell off pieces of Walgreens’ business or work with partners to acquire Walgreens in its entirety.
Neil Saunders, managing director of GlobalData, said Sycamore could sell the U.K.-based Boots chain — which Walgreens acquired for $22 billion in two transactions, one in 2012 and the other in 2014 — to maximize the PE firm’s return.
Sycamore acquired Staples, the office supply retail chain, for $6.9 billion in 2017 and was among those who bid for Kohl’s in 2022. More recently, the PE firm bought Playa Bowls, a national restaurant chain, for an undisclosed amount in September. Sycamore also holds investments in Hot Topic, Ann Taylor, and Chico’s, according to the Journal.
Our Take: As GlobalData’s Neil Saunders noted in a post on LinkedIn, Walgreens has been “in a tailspin for a long period of time.” In the last year and a half or so, the company has tried to stanch its losses by closing underperforming stores and VillageMD clinics. It also shook up its senior leadership team.
Tim Wentworth, who previously served as the first CEO of Cigna’s health services organization, Evernorth, came on board as CEO of Walgreens in October 2023. He immediately set about implementing a $1 billion cost-cutting initiative the company had announced months before.
Rival CVS Health has also experienced financial challenges for reasons similar to those driving Walgreens’ woes (e.g., changes in Medicare reimbursement models, which have affected revenue earned by the primary care clinics, and a shift in retail sales to Amazon, Target, and Dollar General), but CVS’ pharmacy benefit management subsidiary, CVS Caremark, has buffered losses in other segments of CVS’ business.
Walgreens doesn’t own a PBM, and Wentworth said earlier this year he didn’t think that strategy was “the best path” for the struggling retailer.
Saunders wrote in his post: “With few prospects for engineering a rapid elevation of the company, a sale to private equity would be an elegant — if something of a Hail Mary — solution for extracting value for investors.”
He added that Sycamore would be acquiring “a sprawling business empire” it could potentially “fashion into a more disciplined operation.”
Saunders cautioned, though, that “the scale of the task [of acquiring Walgreens] should not be underestimated. 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.”
He added that while cuts to Walgreens’ business segments “would most certainly be on the agenda, … the pathway to grow would be more challenging, as the health care, pharmacy, and retail sides of the business all have inherent problems that are no easily soluble.”
What else you need to know
A bipartisan Congressional group introduced the Patients Before Monopolies(PBM) Act on Wednesday, which would prohibit parent companies of health insurers and pharmacy benefit managers from also owning a pharmacy business. A press release issued by Sen. Elizabeth Warren, D-Mass., referred to such vertical integration as “a gross conflict of interest that enables these companies to enrich themselves at the expense of patients and independent pharmacies.”
If the legislation were to pass, parent companies in violation of the PBM Act would be required to divest their pharmacy business within three years. Federal agencies would have the authority to require the companies to surrender revenue earned during the violation period and the Federal Trade Commission would distribute the revenue to communities and consumers who may have been overcharged.
Sen. Josh Hawley, R-Mo., and Reps. Diana Harshbarger, R-Tenn., and Jake Auchincloss, D-Mass., introduced the legislation along with Sen. Warren. The legislation is unlikely to pass before the end of the year.
McKinsey & Company agreed to pay a $650 million settlement in connection with its role as a consultant to Purdue Pharma in increasing sales of the opioid OxyContin (oxycodone). In an agreement with the Department of Justice, McKinsey will not be prosecuted on criminal charges if the firm pays the $650 million (which also includes a sum to settle a civil case) and adheres to other conditions, including not conducting work related to the sale, marketing, promotion, or distribution of controlled substances for five years. Purdue paid McKinsey in excess of $93 million over a 15-year period for consultation services on several products, including how to boost revenue from OxyContin.
Federal prosecutors alleged McKinsey chose to work with Purdue despite knowing “the risk and dangers” of OxyContin and knowing that Purdue executives had pleaded guilty to crimes related to the drug’s promotion, The Associated Press reported. In addition, Martin Elling, a former senior partner at McKinsey who worked with Purdue, was charged with obstruction of justice for allegedly knowingly destroying records and documents in connection with the DOJ’s investigation. Elling has agreed to plead guilty.
AbbVie will acquire Nimble Therapeutics, a spinout of Roche, for $200 million. With the acquisition, AbbVie will gain Nimble’s lead candidate, an investigational oral peptide IL23R inhibitor being developed as a treatment for psoriasis, along with a pipeline of other investigational oral peptide drugs that have potential in various autoimmune diseases, AbbVie noted in a news release. AbbVie’s Skyrizi (risankizumab-rzaa), an injectable drug indicated for moderate to severe plaque psoriasis and other autoimmune conditions, also targets the IL-23 protein.
In addition to a cash payment of $200 million at closing, the definitive agreement between AbbVie and Madison, Wis.-based Nimble includes “certain interim funding payments” and a potential payment to Nimble’s shareholders if a certain development milestone is achieved. The acquisition is subject to customary closing conditions.
Executive Moves
AdventHealth CEO Terry Shaw will retire in July 2025, ending a 40-year tenure at the Altamonte Springs, Fla.-based health system. He has served as president and CEO since 2016. Prior to that, he held the roles of executive vice president, chief financial officer, and chief operating officer. AdventHealth said in the announcement of Shaw’s retirement that the board of directors has a long-term succession plan and a process for selecting an internal successor in April. Shaw will retain his role on the board.
OSF HealthCare CEO Bob Sehring will retire in April 2026. Sehring has been with the Peoria, Ill.-based health system since 2002 and has served as CEO since 2017. Michelle Conger will become president of the health system on Jan. 1, 2025, and will succeed Sehring when he retires. Conger has been with OSF since 1993, serving as the organization’s chief strategy officer since 2010 and as the CEO of the health system’s OnCall Digital Health unit since 2018, according to a news release.
What we’re reading
The best science images of 2024 — Nature’s picks. Nature, 12.13.24
Salesforce, Epic and the rise of CRM programs. Modern Healthcare, 12.13.24 (subscription required)
Paying More for Primary Care—A New Approach by Medicare. JAMA, 12.12.24 (subscription required)
