Details on the deal

As part of the deal, Sycamore has agreed to pay $11.45 a share in cash for Walgreens, which represents an equity value of around $10 billion and 29% above where the pharmacy chain's stock was trading last year.

Shareholders could also be paid an additional $3 per share, or around $2.7 billion, if Sycamore is successful in shedding the assets of the VillageMD primary care business.

The total value of the deal, including Walgreens' roughly $9 billion in debt and potential future payouts, would be nearly $24 billion. The deal also includes a go-shop period for Walgreens to solicit any other potential buyers for 35 days. The two companies said they expect the deal to close in the fourth quarter of 2025.

"Going private is going to let us be more focused, more nimble, more long-term in our decision-making, in the context of the challenges that we continue to face," said Walgreens CEO Tim Wentworth. "That gives us both the time and the ability to focus in a way to transform Walgreens."

Discussion

Walgreens first went public in 1927 and has struggled in recent years with declining prescription reimbursements and falling sales at its retail locations.

Walgreens' market value surpassed $100 billion in 2015 but has since dropped significantly. In the past year, the company saw a 50% drop in its share price, and its market value dropped below $8 billion before the news of Sycamore's potential purchase broke last year.

For the entire 2024 fiscal year, Walgreens reported a net loss of $8.6 billion, almost triple the previous year's loss, though it beat earnings and revenue expectations in its most recent reported quarter, which ended in November.

Wentworth took over as CEO of Walgreens in October 2023 and has since embarked on a turnaround effort. In October, Walgreens announced it planned to close around 1,200 of its more than 8,000 stores in the United States over the next three years in an effort to cut costs and change focus. According to Wentworth, only around 6,000 of the chain's stores in the United States were profitable.

Advisory Board's Max Hakanson noted that Walgreens' sale price of $10 billion is less than 10% of its peak value in 2015 and said that "not getting into the insurance or pharmacy benefit manager business was potentially a part of their downfall."

"I'm not saying they would've necessarily succeeded in either of those businesses (they're both very tough businesses to break into), but the assets they chose to combine only had limited synergistic potential," Hakanson said. "They also got into the diversification game pretty late and at a bad time. Their investment of $5.3 billion to get a 63% stake in VillageMD in 2021 (at its very peak value) hasn't aged well."

Hakanson said he believes most of the company's focus "will be on turning around their pharmacy/retail business and selling off VillageMD" but added that the company's specialty pharmacy group Shields Health Solutions "is really interesting to watch."

"It's valued at around $4 billion and it's in a sub-sector of healthcare a lot of players want a piece of (the growing specialty drug market)," Hakanson said. "Sycamore specializes in the retail business but has no other healthcare investments. If they look to sell off Shields Health, it's going to take a pretty big fish to afford a $4 billion valuation."