In February, Walgreens Boots Alliance entered into a $10 billion definitive agreement with private equity firm Sycamore Partners to take the company private. The total value of the deal could reach as high as $23.7 billion and is expected to close in the fourth quarter of 2025.
Under the agreement, Walgreens shareholders will receive $11.45 per share in cash at closing. They may also receive up to an additional $3 per share, depending on the future sale of Walgreens’ stakes in VillageMD, Summit Health and CityMD. Notably, Cigna’s Evernorth holds a minority stake in VillageMD.
In January, Walgreens suspended its quarterly cash dividend for the first time since 1932 to reassess its capital allocation strategy, a move tied to its long-term turnaround efforts. Despite the transition, Walgreens will retain its name and Deerfield, Ill., headquarters, ensuring continuity in branding and leadership.
The company began talks with Sycamore in December, shortly after announcing plans to close 1,200 stores over three years, including 500 closures in 2025. Both Walgreens and Sycamore have said the deal will enable the company to accelerate its turnaround strategy, according to CNN.
“While we are making progress against our ambitious turnaround strategy, meaningful value creation will take time, focus and change that is better managed as a private company,” said Walgreens CEO Tim Wentworth. “Sycamore will provide us with the expertise and experience of a partner with a strong track record of successful retail turnarounds.”
According to CNN, some industry experts are skeptical about the buyout’s potential for long-term success.
“Intellectually it sounds like a good idea to relieve a company of the quarter-to-quarter need to satisfy shareholders and instead focus on long-term success,” Mark Cohen, former head of retail studies at Columbia Business School, told the publication. “But from a historical point of view, most of these deals result in the company circling the drain.”
According to The Wall Street Journal, Walgreens’ decline stems from its failure to adapt to online retail trends, coupled with mounting competitive and cost pressures in the healthcare space.
Sycamore, typically known for smaller acquisitions, may look to sell off portions of the business or collaborate with partners to revitalize it, according to the Journal. According to MarketWatch, the firm plans to divest Walgreens’ VillageMD unit, which includes Village Medical, Summit Health and CityMD.
Walgreens had previously invested heavily in VillageMD, acquiring a controlling stake for $5.2 billion and later buying a group of urgent care centers, including CityMD, for $9 billion in 2022. These deals added significant debt without halting the erosion of Walgreens’ pharmacy business and stock price, according to the Journal.
The company’s financial filings have cited VillageMD’s ongoing cash needs as a key issue. In June, Walgreens announced plans to reduce its stake in the business. On a June 27 earnings call, Mr. Wentworth attributed the decision to shifting customer demographics and preferences, noting that 75% of Walgreens’ 8,600 stores generate nearly all retail profits.
The partnership with VillageMD has faced multiple setbacks. Walgreens initially aimed to co-locate hundreds of clinics within its stores and had opened over 200 clinics by 2023, but further expansion was hindered by space limitations and physician recruitment challenges. Larger health systems offering better compensation packages have drawn away much of the talent VillageMD needs.
VillageMD’s value-based care model — which charges a fixed fee per patient — has struggled to scale due to Walgreens’ limited patient resources and lack of an integrated insurer, a gap that CVS has filled with its Aetna unit.
Additionally, VillageMD has failed to meet expected patient volumes. While most primary care physicians manage panels of more than 2,500 patients, Walgreens has not disclosed actual volumes. Moving forward, VillageMD plans to focus on high-density markets and exit nonstrategic locations to optimize performance.
Walgreens has already begun implementing store closures aimed at boosting adjusted earnings and free cash flow. These closures include 300 stores previously targeted in an earlier cost-cutting initiative.
As of August 2024, Walgreens operated around 8,500 stores in the U.S. and 3,700 internationally, down by more than 1,000 in each category since it joined the Dow Jones Industrial Average in 2018, according to CNN.
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