Walgreens Stock Soars on Report of Talks with Sycamore Partners: WSJ

Walgreens Boots Alliance (WBA) stock surged on Tuesday, December 11, following a report by The Wall Street Journal (WSJ) that the company is in talks with private equity firm Sycamore Partners to explore a potential sale. The news sent Walgreens' shares up by more than 18% to a high of $11.12 per share, following a year-over-year decline from a high of $27.05 and a low of $8.08 per share.

The WSJ article, citing unnamed sources, noted that if the deal is successful, Sycamore would sell off parts of the company or work with partners in the deal. Walgreens Boots Alliance, headquartered in Deerfield, Ill., has been eyed by private-equity firms for years and was targeted by private-equity firm KKR in 2019. At that time, Walgreens had a market capitalization of more than $56 billion and held almost $17 billion in debt.

Walgreens has had multiple rounds of layoffs over the last year and announced in October that it will close 1,200 stores over the next three years to right the ship. Those closures have already begun, with nearly 60 locations closing over the last month. CEO Tim Wentworth said in the pharmacy retailer's October quarter earnings call roughly 6,000 of its 8,000 stores are profitable. "Fiscal 2025 will be an important rebasing year as we advance our strategy to drive value creation," Wentworth said. "This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term."

Neil Saunders, managing director and retail analyst at GlobalData Retail, said in an email that Walgreens' tailspin leaves the pharmacy chain with "few options" for rapidly turning the company around, calling a possible sale to private equity an "elegant solution." "If the deal goes through, Sycamore Partners would acquire a sprawling business empire that they could, with some effort, fashion into a more disciplined operation," Saunders said. "They would also have the possibility of selling off parts of the business, such as Boots, to maximize their return." Saunders noted that Walgreens is a "big company with big problems" and requires a long-term investment. "Cuts would most certainly be on the agenda, but the pathway to grow would be more challenging as the healthcare, pharmacy and retail sides of the business all have inherent problems that are not easily soluble," he said. "The size of a deal would be significant, although the dramatic decline in Walgreens market capitalization means that it is one Sycamore could likely afford."

The decision Sycamore Partners needs to make is whether there is enough value in Walgreens to warrant a turnaround investment. If the deal goes through, Sycamore would likely need to invest considerable resources to stabilize and grow the business, potentially affecting the deal's terms and feasibility.