Walgreens Boots going private in the largest ever leveraged buyout: reports

Even bigger than CVS-Aetna may be the leveraged buyout (LBO) being discussed by Walgreens Boots Alliance and private equity firm KKR. It’s conservatively valued at over $70 billion–$56 million in valuation accompanied with about $15 million in debt. 

There are highlights and consequences to going private, not all of which are favorable:

  • Walgreens Boots would have to sell a huge $55 billion of debt, not attractive to lenders both world markets and not even in the strong US market. Recent and far smaller debt packages have struggled to find lenders.
  • The CEO, Stefano Pessina, who is the company’s largest shareholder with a 16% stake, would likely have to roll his equity into the deal
  • The WBA strategy continues to be store-oriented, despite recent closures (150 clinics, 200 stores). It remains the largest retail pharmacy in the US and Europe, with more than 18,750 stores in 11 countries. Additional stores are being opened in retail outlets such as supermarkets.
  • Yet online retailers such as Amazon continue to cut into retail store and pharmacy share
  • Walgreens also has strong pharmacy management benefit relationships with insurers such as Blue Cross Blue Shield group. Would an LBO affect these relationships which often involve Federal and state programs?

A final consequence most of interest to those in health tech and looking for support. While an LBO frees a company from shareholders, it puts the company into a cycle of payments to lenders that must be made on time–and tends to put that first in company priorities. Innovation and new initiatives take a back seat.

Whether this will come to pass is debatable–and even pointed to as the end of the stock market rally. With this on the company’s agenda, WBA will likely put any health tech deals on the far back burner.  MarketWatch, Bloomberg, Reuters

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