Walgreens Outlook Improves As Buyout Faces Shareholder Vote Next Month
News that Walgreens Boots Alliance quarterly loss was better than expected and pharmacy sales are rising bodes well for a financial turnaround under new ownership.
Under future owner Sycamore Partners, analysts expect cost-cutting to escalate once the private equity firm's $10 billion purchase of Walgreens is complete before the end of this calendar year. One of the first major hurdles is a vote of shareholders at a special meeting on July 11.
But there's been no serious opposition that has emerged to the purchase by Sycamore, which is paying $11.45 per share — 29% above the December stock price. Sycamore also agreed to 'one non-transferable right" to receive up to $3 in cash per Walgreens share 'from the future monetization of WBA's debt and equity interests in VillageMD, which includes the Village Medical, Summit Health and CityMD businesses,' the companies said of Walgreens' primary care businesses.
Walgreens reported a net loss of $175 million, or 20 cents a share, in the company's fiscal third quarter ended May 31 compared to net income of $344 million, or 40 cents a share, in the year-ago period. Total sales rose 7% to $39 billion in its third quarter.
Walgreens chief executive officer Tim Wentworth highlighted what he called 'continued improvement' in the company's U.S. Healthcare segment, that includes Village Medical, Summit and CityMD. The U.S. healthcare segment, which reported $2.1 billion in third quarter sales, reported an operating loss of $64 million, which was much improved over the operating loss of $220 million in the year-ago quarter, 'reflecting lower acquisition-related amortization and higher contributions from VillageMD risk-based business,' Walgreens said.
Meanwhile, analysts were impressed with Walgreens ability to produce 'positive free cash flow in the quarter, a key positive given recent negative free cash flow trends,' Ann Hynes and colleagues at Mizuho Securities USA wrote in a report Thursday. 'WBA continues to expect Sycamore Partner's acquisition of the company to close in either the third of fourth quarter of calendar year 2025.'
The Sycamore deal comes after Walgreens, which had a market value of more than $100 billion a decade ago, undertook the failed VillageMD in-store clinic rollout that led it to close hundreds of stores to reduce debt and stem financial losses.
Wentworth said Walgreens is benefiting from 'cost savings initiatives' that include closing underperforming stores. Walgreens is on pace to meet its goal of closing 1,200 stores by its fiscal 2027. The company, which operates about 8,000 U.S. stores, has closed a little more than 400 stores in the first nine months of its fiscal year ended May 31 and said it would close 500 in this fiscal year.
Walgreens third quarter results were much improved over its second quarter when the company in March reported a $2.8 billion loss thanks to a large impairment charge related to its struggling doctor-staffed clinic investment in VillageMD.
Analysts who follow Walgreens see the move to private ownership as another plus because the company and a stock price attached to public ownership will no longer be subject to the whims of Wall Street.
'By making the move to go private, Walgreens will have the time for reinvention, something not possible as a public company chasing quarterly numbers," said Dave Mayer, Senior Partner at the brand consultancy Lippincott.
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