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Actions of Walgreens Boot Alliance (NASDAQ: AMB) it shot up 20% on Tuesday, at 2:35 pm ET.
The ailing retail pharmacy has bounced back on rumors that it could be bought by a private equity firm. Purchases are typically made at a premium to the stock’s market price, and with the stock down 63% for the year and 90% from its highs, there was ample room for a premium to the stock’s price. closing of yesterday’s actions.
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Today, The Wall Street Journal reported that private equity firm Sycamore Partners has been in talks with Walgreens about a possible purchase. He WSJ reported that according to “people familiar with the matter,” the talks could be consummated early next year.
Walgreens is much smaller than $100 billion market capitalization reached in 2015, with its value falling to just $7.4 billion yesterday, but jumping to over $9 billion at the time of writing. That would make it a big deal for Sycamore, but also feasible, as private equity has attracted more investor money in recent years. That said, Walgreens also has net debt of about $8 billion, excluding operating leases.
Walgreens has been attempting a turnaround under CEO Tim Wentworth, who comes from the pharmacy benefit manager (PBM) industry, whose tough negotiations over drug reimbursement have been a source of depleting Walgreens’ margins.
While Wentworth recently said negotiations with PBMs for better reimbursement rates are going well, other tech-savvy retailers and e-commerce players are also moving quickly to enter same-day pharmaceutical delivery services. That added threat may require more investment by Walgreens to compete, and spending amid depressed revenue could spook public market investors. Apparently, Sycamore believes it can help Walgreens move away from the prying eyes of the market.
Today’s bounce indicates that investors believe a deal is likely, but further gains may be difficult to realize from now on. Walgreens is well below its peak levels, but it also faces major challenges that will likely limit the amount Sycamore is willing to pay. Meanwhile, if a deal is not reached, the stock is expected to hit its recent lows again.
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