Walgreens private equity buyout financed by $10B with 83% debt – HealthExec
A recent filing with the U.S. Securities and Exchange Commission (SEC) has shed light on the impending private equity buyout of Walgreens. The struggling pharmacy chain is set to be acquired by Sycamore Partners in a deal worth $10 billion. Shareholders are expected to receive $11.45 per share in cash, with the potential to earn an additional $3.00 through the sale of other Walgreens assets, particularly its primary care clinics under VillageMD. The total value of the transaction, including the assumption of debts and property, could reach up to $23.7 billion, as announced by the companies involved.
However, the financing of this buyout is raising eyebrows. The SEC filing reveals that Sycamore plans to fund the acquisition with 83% debt, significantly higher than the average of 41% used by private equity firms in similar transactions last year. Concerns have been raised by the Private Equity Stakeholder Project (PESP), noting that Sycamore’s equity commitment of $2.5 billion seems to exceed the capital available in their buyout fund. This discrepancy has led to uncertainty about the feasibility of the deal.
PESP has highlighted the risks associated with such a leveraged buyout strategy, emphasizing the potential burden of substantial debt on the acquired companies. The group pointed out previous bankruptcies of companies under Sycamore’s ownership, expressing concerns about the impact on innovation, workforce development, and market adaptability. There are fears of job losses and service disruptions for consumers and patients if Sycamore fails to meet its financial obligations.
Despite these concerns, both Walgreens and Sycamore have indicated their intention to continue operating the core retail pharmacy business in the U.S., even though many locations are struggling. The specific plan to achieve profitability remains undisclosed, and the details may not be required to be made public if the company goes private. The transaction is subject to regulatory approval and shareholder consent, with a 35-day “go-shop” period allowing Walgreens to entertain other offers from potential buyers.
In the broader context of the healthcare industry, this development at Walgreens reflects a trend of consolidation and transformation driven by financial interests. Private equity involvement in healthcare has been increasing, raising questions about the long-term sustainability and impact on patient care. The outcome of the Walgreens buyout will be closely monitored, as it could set a precedent for future acquisitions in the sector.
