Walgreens $10B private equity buyout financed by 83% debt
A filing with the U.S. Securities and Exchange Commission (SEC) provides details on the upcoming private equity buyout of Walgreens. The transaction was confirmed on Friday, with Sycamore Partners set to buy the struggling pharmacy chain and transition it into a private company.
The $10 billion deal has current shareholders taking home $11.45 a share in cash, with the possibility of earning an extra $3.00 upon the sale of other Walgreens assets, mainly its chain of primary care clinics, VillageMD.
In total, after Sycamore takes on all of Walgreens debts and property, the transaction could be worth upwards of $23.7 billion, according to a statement released by the companies.
However, it appears Sycamore may be financing its purchase with more debt. According to the SEC filing, the the buyout is being proposed using 83% debt, more than double the average of 41% that private equity firms used to acquire companies last year, according to statistics from the Private Equity Stakeholder Project (PESP).
In its own statement on the upcoming sale, PESP said Sycamore has made a $2.5 billion equity commitment totaling 11.1%; however, that represents “capital that it does not appear to have.”
Citing data from Pitchbook, PESP noted the Sycamore Partners III buyout fund, used to front transaction, had only $1.29 billion in capital available at the end of last year.
Regardless, the amount of equity being pledged totals roughly $3.75B—far less than the $10 billion price tag, and even less than the much larger expected commitment.
PESP said this revelation is “concerning.”
"This leveraged buyout tactic saddles private equity-owned companies with substantial debt, often draining resources that could otherwise be invested in innovation, workforce development, or adapting to market changes,” the group wrote in a prepared statement.
"Sycamore Partners, in particular, has demonstrated problems at the portfolio companies it has owned. Under Sycamore Partners’ ownership, multiple companies, including Belk and Nine West, have filed for bankruptcy,” it added.
PESP cites concerns with the proposed buyout, ranging from a high risk of bankruptcy to the loss of jobs, as well as a disruption in “services for consumers and patients” that could create “ripple effects across local economies,” should Sycamore default on its loans.
Both companies said they intend to maintain much of the core retail pharmacy business of Walgreens operating in the U.S., despite a large number of locations continuing to struggle. However, the business plan leading to profitability remains largely unknown and may not have to be disclosed should the company be taken private.
The transaction has yet to be approved by regulators or finalized by shareholders. For now, there also remains in place a 35-day “go-shop” period, during which time Walgreens may field other offers from prospective buyers.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.