On December 10, Tuesday, Eastern Time, according to The Wall Street Journal, the American pharmacy chain $Walgreens Boots Alliance (WBA.US)$ is in talks with private equity firm Sycamore Partners regarding a sale. If the deal succeeds, this retail giant with over 120 years of history will be delisted from the public market. Insiders revealed that both parties are expected to reach an agreement early next year, unless negotiations collapse.

As a result of this news, the WBA stock price increased by 5.9%, triggering during Regular Trading Hours circuit breaker. Once trading resumed, the increase quickly expanded to 23%, ultimately closing up nearly 18%.

However, in recent years, the company's stock price has been continuously declining, with its Market Cap shrinking from a peak of over 100 billion USD in 2015 to currently under 10 billion USD, having dropped nearly 70% year to date. This predicament faced by WBA reflects the tremendous pressure on America's traditional Retail Trade industry. With the rise of e-commerce and online Medical Services, as well as intensified competition in prescription drug prices, the operating environment for traditional chain pharmacies like WBA is becoming increasingly challenging.

WBA is facing a transformation predicament.

WBA's history dates back to the late 19th century. After over 120 years of development, the company has become one of the most representative retailers in the USA. Today, WBA has more than 0.012 million stores across the USA, Latin America, and Europe, spread throughout various Communities, making it an indispensable part of people's lives.

However, in recent years, WBA has failed to achieve the expected success in addressing industry changes. In response to competitive pressures, WBA has heavily invested in its Medical clinic business, hoping to find new growth points through transformation, but this strategy has not effectively curbed the decline in performance.

WBA's predicament is not an isolated case. In recent years, many retail pharmacies have faced similar pressures, especially due to intensified competition in drug pricing leading to a general decline in company profit margins. This predicament arises from the pressure on drug prices exerted by Pharmacy Benefit Management companies, which negotiate drug prices on behalf of insurance companies and employers. Meanwhile, the rise of e-commerce platforms like Amazon has squeezed the retail business of traditional pharmacies.

In the face of these challenges, WBA's competitor CVS Health has diversified its business through the acquisition of Pharmaceutical Benefit Management companies and insurance companies, while WBA remains primarily focused on the retail pharmacy business.

In 2012, WBA spent over 6 billion dollars to acquire nearly half of the stake in the European pharmacy giant Alliance Boots in an effort to expand into overseas markets. In 2015, the company completed its acquisition of the remaining shares of Alliance Boots. However, this transaction did not go as smoothly as expected. After the acquisition, the financial pressure facing WBA's core pharmacy business forced the company to consider other options, including a potential sale of Boots.

In October 2023, Tim Wentworth from the PBM industry took over as CEO of WBA, aiming to turn the company's situation around. The company announced plans to close a large number of underperforming stores, improve overall efficiency, and refocus on its core business by reducing its stake in primary care provider VillageMD.

Is there a resurgence in mergers and acquisitions in the Retail Trade?

Against this backdrop, as the second largest chain pharmacy in the USA, WBA has long been viewed as a potential target for private equity acquisition, but its large scale seems to deter many potential buyers.

Looking back in history, in 2019, private equity giant KKR made an acquisition offer of about 70 billion dollars for WBA. At that time, WBA's Market Cap exceeded 50 billion dollars, and if the deal had succeeded, it would have become one of the largest privatization deals in history. However, this transaction ultimately did not come to fruition.

In fact, in recent years, interest from private equity in acquiring the Retail Trade has clearly cooled down. This is mainly due to the failures of high-profile acquisition cases like Toys "R" Us, which significantly raised the financing difficulties for such transactions. In the past few years, only a few larger retailers have been acquired by private equity firms.

For Sycamore Partners, the acquisition of WBA would be the largest transaction in its history. Sycamore is based in New York and focuses on investments in the Retail Trade and Consumer sectors, having been involved in several smaller transactions in recent years.

For example, in 2017, Sycamore acquired the office supply retailer Staples for nearly 7 billion USD, and in 2022, participated in the bidding for the department store Kohl's. In September 2023, Sycamore announced the acquisition of the dining chain Playa Bowls. Additionally, Sycamore's current portfolio includes several outfit brands such as Ann Taylor Loft and Aéropostale, as well as the department store Belk.

If this acquisition is successful, it will further expand Sycamore's presence in the Retail Trade sector. Moreover, Sycamore may consider restructuring WBA, selling off parts of the business or bringing in partners for joint operation to achieve higher investment returns.

Editor/Somer