Business
Walgreens Negotiates Sale to Sycamore Partners: Retail Crisis Intensifies
Walgreens could be rescued by a sale to Sycamore Partners as the retail sector struggles with increasing pressure.
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The US pharmacy chain Walgreens Boots Alliance is in negotiations with the private equity firm Sycamore Partners about a potential sale. This highlights the growing pressure on the retail sector in the pharmaceutical industry.
Walgreens, which also owns the British Boots chain, is struggling with the burden of high inflation and growing competition. These factors have significantly impacted the profitability of its more than 12,500 locations in the USA, Europe, and Latin America. In October, the company announced it would close 1,200 stores in the coming years after reporting a net loss of nearly 9 billion US dollars for the fiscal year 2024.
After reports of the negotiations, Walgreens' stock price rose by nearly 20 percent on Tuesday, after previously having fallen to a market capitalization of only about $8 billion—a drastic decline from $106 billion in 2015.
The talks with Sycamore mark a turning point for Walgreens, which had received a $70 billion acquisition offer from the private equity firm KKR in 2019. This offer would have represented the largest transaction in the private equity sector but was declined.
The challenges for Walgreens have since intensified. While competitors like Amazon and Target are increasingly gaining market share, planned sales or IPOs of the Boots chain, which Walgreens originally intended to acquire, have not been implemented so far.
Last year, Walgreens appointed Tim Wentworth, a former Cigna executive, as CEO. Wentworth succeeded Rosalind Brewer, whose two-year tenure was marked by falling stock prices and unsuccessful acquisitions. Failed acquisitions include the purchases of the healthcare group Summit Health-CityMD and the homecare provider CareCentrix.
Walgreens is not alone: Other retail pharmacies like Rite Aid are also fighting for survival. Rite Aid filed for Chapter 11 bankruptcy in 2023 to restructure billions in debt. CVS Health, on the other hand, fared better through diversification into health insurance and pharmacy benefit management, but is facing increasing pressure from activist investors.
A possible deal with Sycamore would be a big gamble for the private equity firm, which manages assets worth about 10 billion US dollars. Analysts suspect that Sycamore will need additional partners to fully delist Walgreens.
Elizabeth Anderson of Evercore commented that a Walgreens restructuring might be easier to carry out away from the public markets. It remains unclear whether Walgreens will remain whole or be split into several parts under Sycamore.
Sycamore is known for investments in troubled retail companies such as Loft, Hot Topic, and Staples, which was acquired for 7 billion USD in 2017. A consultant from Sycamore, John Lederer, has been on the board of Walgreens since 2015, which could favor the negotiations.