Walgreens Boots Alliance has been in discussions with major private equity firms to possibly take the global drugstore chain private, according to media reports and sources close to the company.
Reuters Tuesday said Walgreens “has held preliminary discussions with some of the world’s largest private equity firms about putting together what would be the biggest ever leveraged buyout.” Reuters, which was first to report the news, said Walgreens has “tasked investment bank Evercore Partners . . . with exploring whether a deal can be put together,” according to the report, which cited sources and cautioned that such a deal is “far from certain.”
Reached Tuesday afternoon, Walgreens executives had no comment.
Talk of a potential leveraged buyout of the giant drugstore chain comes as Walgreens looks for ways to compete with rival CVS Health, which last year spent $69 billion to buy Aetna, the nation’s third largest health insurance company.
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Walgreens response to CVS Health’s Aetna deal and rollout of 1,500 “HealthHub” stores in the coming years has been to avoid a major merger and instead sign myriad partnerships. Walgreens has pilot projects and tests with companies like the grocer Kroger, Microsoft and primary care providers like Humana’s Partners in Primary Care and VillageMD, a developer of primary care clinics.
But some analysts who follow Walgreens have been questioning whether these partnerships will generate revenue and income soon enough to compete with rival CVS already rolling out hundreds of new store formats and Walmart opening its first healthcare “super center” earlier this year. These analysts have been becoming impatient with Walgreens management and that has reflected in the deterioration of the global drugstore chain’s stock price in recent months.
A leveraged buyout that would allow the drugstore chain to go private would be one way to escape scrutiny from Wall Street and analysts who regularly question Walgreens strategy. Sources close to Walgreens say the company has been looking at a larger deal and a leveraged buyout would be one thing it may take to the company’s board of directors.
But any private takeover of Walgreens would likely require multiple banks and private equity firms. And it would also have to come at a price that would be of benefit to Stefano Pessina, Walgreens CEO and largest individual shareholder unless the Italian billionaire decides to help finance the private takeover given the size of his stake.
With more than 9,200 U.S. pharmacies in all 50 U.S. states, Washington, D.C., Puerto Rico and the U.S. Virgin Islands, Walgreens strategy hasn’t been clear to investors and analysts given the multiple partnerships that are in testing stages.
Last month, Walgreens announced plans to escalate cost cutting to more than $1.8 billion annually by fiscal 2022 from the current target of $1.5 billion annually.
At that time, Pessina reiterated the partnership strategy was key to Walgreens future and said he doesn’t just want a “physical transformation of our pharmacies offering more and more services to our customers, but we wanted to change the model.”
“Having a complete different relationship with our customers and this is what we are doing and you can see small things here and there that are already public that can give you this feeling,” Pessina said.