Private equity firm KKR & Co. approached Walgreens about a deal to take the firm private in what could be the largest private takeover in history, according to a new report.
KKR, one of the world’s largest private equity firms, is preparing a proposal to buy shareholders of Walgreens Boots Alliance, sources told Bloomberg News on Monday. The report cautioned that Walgreens could opt against pursuing a deal with the company, but it noted that KKR “formally approached” Walgreens.
Several days ago, Reuters reported that Walgreens is exploring whether to go private. The firm, which has thousands of stores in the United States, has a market value of more than $55 billion. In the interim, the chain has tasked Evercore Partners, an investment bank, with looking into whether such a transaction could take place.
According to CNN, citing a merger research firm, the largest private takeover ever involved KKR, which acquired Texas utility company TXU. Private equity firm TPG and Goldman Sachs were also involved in the takeover.
KKR, based in New York, had also participated in the merger of Walgreen Co. and Alliance Boots Plc., which was a $22 billion deal finalized in 2014.
Bloomberg, citing CreditSights Inc, noted that a “potential deal would require Walgreens Boots to sell some $55 billion of debt.”
Stephen Schwarzman, head of the Blackstone Group Inc., said that it would be difficult for KKR to buyout Walgreens, which also operates the Duane Reade drugstore chain, right now.
“It might be possible,” Schwarzman was quoted by Bloomberg as saying. “It’s a huge stretch doing things over $50 billion.”
“Given poor industry fundamentals, seemingly never-ending margin pressures faced in the healthcare supply chain, and, let’s face it, ongoing uncertainty about unpredictable items such as opioids exposure, we would struggle to see a monster premium beyond this current run-up (in the stock),” Baird analyst Eric Coldwell wrote, reported Reuters.
In a prior Bloomberg report, a buyout would relieve some of the pressure that Walgreens has been facing in recent years.
“The company is under immense pressure from online competitors including Amazon.com Inc., which have chipped away at front-of-the-store sales of household and beauty items. While top rival CVS Health Corp. has grown into a vertically integrated health-care giant, Walgreens Boots has doubled down on retail, announcing pilot partnerships with retailers including grocer Kroger Co,” the news agency wrote.
In late October, the firm said it would close some 150 in-store clinics until the end of the year. It will then keep about 200 open in partnership with health care providers. The Associated Press reported on the development, saying that in August, the chain announced it was closing some 200 stores, which represents 3 percent of the firm’s 9,600 stores across the United States.
Layoffs were announced at the corporate office in Deerfield, Illinois.
“We are modifying our corporate support office structure to drive organizational efficiencies and reduce our cost base, while promoting investment in truly differentiating capabilities,” spokesman Jim Cohn said in a statement to the Chicago Tribune.
Walgreens is the largest retail drugstore in the United States and Europe, and it has more than 18,750 stores in 11 countries, according to its website.