Shares of Walgreens Boots Alliance (NASDAQ:WBA) jumped 8% on Tuesday, following a report that the company is exploring a potential deal to be acquired by private equity. The stock lost some of those gains before the close, but investors seem to be taking the rumor seriously.
Reuters reported Tuesday that Walgreens, one of the nation's largest drugstore chains, has held preliminary discussions with some of the world's top private equity firms about putting together a deal that would rank among the largest buyouts in history. Walgreens, which has a market capitalization of more than $52 billion and an enterprise value of more than $70 billion, has retained Evercore Partners to explore interest, according to the report.
Walgreens didn't offer any confirmation of or comment on the report.
Investors are understandably excited by the prospects of a buyout, but there are reasons to be skeptical. A deal of that size would require cooperation of a number of private equity firms working together. Those so-called "club deals" were among the big losers a decade ago when the Great Recession hit, and given the concerns that the U.S. economy could be heading toward a recession, today many firms could be gun-shy.
Potential buyers also have reason to worry about the health of the target. Walgreens last week warned that 2020 results would be affected by low reimbursement rates on prescription drugs and competition from online retailers. The company has also been reshuffling assets in an attempt to boost profitability, closing underperforming stores and exiting certain businesses.
Company CEO Stefano Pessina owns a 16% stake, and assuming he is willing to roll his equity into a deal it would make the purchase more palatable to buyers. Walgreens, according to the report, has also floated divesting additional assets, including its 27% stake in AmerisourceBergen, to raise capital.
Shares of Walgreens are down more than 22% for the year even after Tuesday's gains, so investors were understandably excited to hear the talk of a potential buyout. But it is far from certain that any concrete offer will emerge from the reported interest.