"Walgreens Going Private: Gary Black's Bold Call and the $10 Billion Sycamore Deal"

Ladies and gentlemen, buckle up! We've got a blockbuster deal on our hands, and it's not just any deal—it's Walgreens Boots Alliance (WBA) going private in a $10 billion transaction with Sycamore Partners. Gary Black, the Managing Partner at The Future Fund LLC, has been vocal about this move, saying that Walgreens "shouldn't be public." Let's dive into the details and see why this deal is a game-changer!



The Deal of the Century

Walgreens has agreed to be acquired by Sycamore Partners at $11.45 per share in cash. This deal, valued at up to $23.7 billion, includes an additional potential payout of up to $3 per share from the future monetization of Walgreens’ interests in VillageMD. This is a massive move, and it's driven by the company's largest shareholder, Executive Chairman Stefano Pessina, who holds a 16.9% stake. Pessina's influence is clear, and he's pushing for a more controlled environment to drive long-term value creation.

Why Gary Black Says Walgreens Shouldn't Be Public

Gary Black has been vocal about his views on Walgreens. He believes the company is undervalued, trading at "5x EV/EBITDA backed by strong secular megatrends (e.g., people living longer)." This valuation metric suggests that Walgreens is a steal at its current price. Black also points out that the move to take Walgreens private is driven by its largest shareholder, Stefano Pessina. This significant ownership stake indicates a strong influence on the company's strategic decisions, including the decision to go private.

The Benefits of Going Private

1. Operational Flexibility: As a private company, Walgreens will have more operational flexibility to implement strategic changes without the immediate pressure of quarterly earnings reports. This can allow for a more focused and long-term approach to its turnaround strategy.

2. Expertise and Experience: Sycamore Partners has a proven track record in retail turnarounds, which can bring valuable expertise to Walgreens. This partnership can help in navigating the challenges of the retail and pharmacy industry more effectively.

3. Potential for Future Value Creation: The deal includes an additional potential payout of up to $3 per share from the future monetization of Walgreens’ interests in VillageMD. This can provide shareholders with additional value creation opportunities in the future.

The Drawbacks of Going Private

1. Loss of Public Scrutiny: Delisting from the Nasdaq means Walgreens will no longer be subject to the same level of public scrutiny and transparency. This could potentially lead to less accountability and oversight, which might affect the company’s governance and decision-making processes.

2. Market Perception and Valuation: The private equity deal might be seen as undervaluing Walgreens’ long-term potential, which could affect market perception and investor confidence. This could also impact the company’s ability to raise capital in the future.

3. Potential for Job Cuts and Store Closures: As a private company, Walgreens might face pressure to cut costs, which could lead to job cuts and further store closures. This could negatively impact the company’s workforce and its presence in local communities.

The Impact on Operations, Market Position, and Long-Term Sustainability

- Operations: The transition to a private company could streamline operations by allowing for more strategic and long-term planning. However, it could also lead to cost-cutting measures that might affect employee morale and customer service.

- Market Position: Walgreens’ market position could be strengthened by the expertise and resources brought by Sycamore Partners. However, the loss of public scrutiny and potential job cuts could weaken its competitive edge and customer trust.

- Long-Term Sustainability: The long-term sustainability of Walgreens could be enhanced by the operational flexibility and strategic focus provided by being a private company. However, the potential for job cuts and store closures, along with the loss of public scrutiny, could pose risks to its long-term viability.

The Bottom Line

This deal is a no-brainer for Walgreens. The company will have the operational flexibility and expertise it needs to navigate the challenges of the retail and pharmacy industry. The potential for future value creation is enormous, and the deal includes an additional payout of up to $3 per share from the future monetization of Walgreens’ interests in VillageMD. This is a game-changer, and it's driven by the company's largest shareholder, Stefano Pessina. So, buckle up and get ready for the ride—Walgreens is going private, and it's going to be a wild one!