Walgreens Boots Alliance Shares Surge on Report of Pending Buyout Deal

Shares of Walgreens Boots Alliance (WBA) rose in premarket trading on Tuesday, following reports that the drugstore chain is nearing a deal to be acquired by private-equity firm Sycamore Partners. The potential buyout, valued at around $10 billion, could see Sycamore paying between $11.30 and $11.40 per share in cash for Walgreens, according to people familiar with the matter cited by The Wall Street Journal.

The planned deal, which could be announced as soon as Thursday, would see Sycamore taking Walgreens private and potentially breaking it up, according to the report. Walgreens Boots Alliance, Inc. specializes in the distribution of pharmaceutical products, with net sales breaking down by activity as follows: retail distribution (87.2%), wholesale distribution (8.1%), and healthcare (4.7%). Geographically, the company's net sales are primarily generated in the United States (84.1%), Germany (8.2%), the United Kingdom (6.5%), and other regions (1.2%).



The potential buyout comes as Walgreens has been facing increased competition and changing consumer behavior, leading to declining earnings in recent years. However, the company has been implementing a turnaround strategy under new CEO Tim Wentworth, which could lead to improved financial performance in the long run. If the buyout deal goes through, investors should monitor Walgreens' revenue and earnings growth to assess the success of Sycamore's plans for the company.

One of the key financial metrics to consider when evaluating the potential impact of the buyout deal on Walgreens' long-term performance is the Enterprise Value (EV) and EV/EBITDA ratio. In this case, Sycamore is expected to pay between $11.30 and $11.40 per share in cash, which translates to an EV of around $10 billion. To assess the deal's attractiveness, compare this EV with Walgreens' EBITDA and the industry average EV/EBITDA ratio. For instance, Walgreens' EBITDA in 2021 was approximately $6.5 billion, resulting in an EV/EBITDA of around 1.54x to 1.56x. This is relatively high compared to the industry average of around 1.2x to 1.4x, suggesting that Sycamore may be overpaying for the company.



Another important aspect to consider is the proposed three-way split of Walgreens' businesses, as reported by the Financial Times. Sycamore Partners is planning to split Walgreens into three separate entities: the main Walgreens pharmacy in the U.S., the Boots pharmacy and chemist in the U.K., and specialty pharmaceutical unit Shields Health Solutions. This strategic move could potentially generate synergies and cost savings through improved operational efficiency, targeted investment, potential divestment or IPO of non-core assets, reduced public company costs, and potential synergies between the separate entities.

In conclusion, the potential buyout deal between Walgreens Boots Alliance and Sycamore Partners could have significant implications for the company's long-term performance and competitive position in the respective markets. By considering key financial metrics and the proposed three-way split, investors can better evaluate the potential impact of the deal and make more informed decisions about the company's future prospects. As the situation develops, it will be crucial to monitor Walgreens' financial performance and strategic initiatives to assess the success of Sycamore's plans for the company.