Shares in Walgreens Boots Alliance received a shot in the arm this week as speculation circulated that a potential private equity takeover of the US pharmacy giant was alive and kicking. It means a carve out of the UK high street Boots chain is once again a possibility.
Investors were left disappointed in January after CNBC reported the $10bn approach by Sycamore Partners was “mostly dead”.
Expectations of a deal had helped the fatigued stock rally, but the share price dropped back as hopes of a deal faded.
However, the shares jumped 14% earlier this week as the US television cable network announced the takeout remained “alive” after all.
If Sycamore seals a deal, it will mark the end of a challenging period for Walgreens and also revive speculation about what the future holds for Boots in the UK.
“Shares in Walgreens Boots Alliance have been on a losing streak for the past two years as the business suffered from weaker demand post-Covid and its growth strategy didn’t play out as expected,” said Dan Coatsworth, investment analyst at AJ Bell.
“There is a price for every company, even those which are battered and bruised, and Walgreens’ shares appear to have fallen far enough to put it in the takeover zone.”
Walgreens Boots’ market cap has plunged from a high of $100bn in 2015, with the group receiving a $70bn offer from PE firm KKR in 2019.
Coatsworth added the potential of breaking up the group and spinning off Boots made the talks “even more interesting”.
“The two companies haven’t sat well together for some time and despite efforts to list or sell Boots, a satisfactory deal couldn’t be reached,” he added. “If Sycamore does end up buying Walgreens, it may decide to put Boots back on the block and use its charms to find a new owner for the UK chemist.”
Boots has undergone a transformation over the past couple of years as the business improved its stores, grew market share and saw the online operation firing on all cylinders.
Walgreens attempted to sell Boots in 2022 but abandoned the plans after failing to attract offers at a suitable price.
“A sale of Boots would be much easier to orchestrate if the narrative remains positive,” Coatsworth said. “For all of its ups and downs, Boots remains one of the strongest brands on the UK high street. Someone with enthusiasm and fresh thinking could breathe new life into the business and put it back on top.”
Independent retail analyst Nick Bubb agreed. “Time will tell if Walgreens is to be taken private after all, and if it results in Boots being floated again in the UK. The investor appetite for it is there now given the continued strength in the health and beauty market,” he said.
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