The other shoe just dropped. Walgreens Boots Alliance filed today (7 August) Form 8-K with the Securities and Exchange Commission (SEC) that confirms that they are considering a VillageMD sale. On page 2, Walgreens is considering the “sale of all or part of the VillageMD businesses, possible restructuring options and other strategic opportunities.”

The broad reason why is that VillageMD has “substantial ongoing and expected future cash requirements”. The specific event is VillageMD’s default as of 2 August on the VillageMD Secured Loan, a senior secured term loan and credit facility amounting to $2.25 billion. Currently (6 August), the loan is in a forbearance agreement while the companies work out terms. The 8-K also reiterates that Walgreens “is actively engaged in discussions with VillageMD’s stakeholders and other third parties with respect to the future of its investment in VillageMD”.

None of this should be surprising given recent statements made by CEO Tim Wentworth on the dismal Q3 earnings call [TTA 2 July], disclosing that Walgreens plans to lower its Village MD ownership below a majority holding (currently 63%). This signaled a partial sale at least–and that Walgreens was giving up on VillageMD as an integral part of the company. Between the direct investment of $5.3 billion and subsidizing Village MD’s purchase of Summit Health/CityMD with an additional $3.5 billion plus development costs, the Village MD Money Pit has disappeared roughly $10 billion of Walgreens’ fisc. Closing 160 locations did not, and could not, unsink this ship. While VillageMD is not the only dark spot for Walgreens’ business (retail is crashing, pharmacy is going soft), the plunging stock price has kicked off multiple shareholder class action lawsuits.[TTA 17 July]

It’s going to be tough to find any buyer at all at even a fraction of what Walgreens invested. An industry analyst estimated VillageMD’s 2023 losses at $800 million last April. WBA took a writedown last quarter, a $12.4 billion non-cash impairment charge related to VillageMD goodwill. Cigna also wrote off $1.8 billion of its 2022 $2.2 billion investment which gave it a ‘in the teens’ share [TTA 2 May]. Even CVS is trying to amortize its $10.6 billion buy of its own Money Pit–much smaller Oak Street Health–by finding a joint venture private equity partner [TTA 29 May].

This filing, coupled by the announcement of a third sale of Cencora stock to generate cash [TTA 7 Aug], points to no end in sight of Walgreens’ troubles. The SEC filing took place after markets closed; investors can expect a very down morning in an unstable market. Crain’s Chicago Business, Forbes