Key Points
Walgreens is an iconic brand in the pharmacy space, but it has fallen on hard times.
The retailer has agreed to be taken private as it looks to turn its business around.
There’s a potential post-takeover boost for shareholders, but the outcome is far from certain.
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Walgreens Boots Alliance‘s (NASDAQ: WBA) stores dot the U.S. landscape, given that it is one of the largest pharmacy retailers in the country. But as an investment, well, it hasn’t performed very well for a little while. And now it is heading into private hands. Here are three things you need to know before you buy Walgreens stock today.
1. Walgreens has been struggling
The most important thing to keep in mind when you look at Walgreens today is — unfortunately– its weak business performance. It really isn’t unique to Walgreens; the entire pharmacy retail space has been kind of tough. However, Walgreens compounded the problem by making big investments that didn’t pan out as well as hoped.
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For example, it got into the pharmacy benefit management business only to realize that it wasn’t going to be the growth engine management had hoped. It exited the space and pivoted into the emerging medical clinic niche. That, too, hasn’t gone according to plan. Add in a bloated retail store base and the company is in need of a major overhaul.
It has been working toward that goal, but big revamps can be hard to do for public companies. For example, the decision to cut Walgreens’ dividend to preserve cash was not well received by investors even though it will be helpful to the turnaround. Which brings the story to point number 2.
2. Walgreens is being taken private
Sometimes it helps for a company to be in private hands during a turnaround effort. That allows management to make bigger and bolder moves because it doesn’t have to worry about appeasing Wall Street. To that end, Walgreens has agreed to be bought by Sycamore Partners. The deal is expected to close in the second half of 2025, with Walgreens shareholders getting $11.45 per share in cash.
That’s all that investors here can expect to receive if they buy Walgreens. That’s the guaranteed upside limit. Right now the stock is trading at a few cents above the takeout figure (more on this in a second). There’s two big takeaways. First, Walgreens is not a long term investment because it is exiting the public market. Second, the guaranteed return here is basically zero (or worse) at this point. Sure, Walgreens is an iconic business, but it probably isn’t the best investment choice for most.
3. There’s a possible boost for investors
The wrinkle in this story is that Walgreens is actively looking to sell its medical clinic business. That sale will likely occur after it is taken private. And, as a sweetener for the deal, Sycamore Partners is giving shareholders a chit that entitles them to a portion of the proceeds from the sale of the clinic business. It could be worth as much as $3 per share. That could mean an additional 25% or so upside after the company goes private.
The problem with this is that there’s no time frame for the clinic business sale. And there’s no guarantee on the price, either. So investors could get $3 per share, or they could get nothing. They could get money the day after the Walgreens takeover closes, or they could never get any money. This is, at best, a special situation that only more aggressive investors will want to bother with. It seems likely that the clinic business has some value, but it is hard to assess what that value is or assign a time frame to the final payment, if there is one.
The Walgreens stock story is just about over, for now
Walgreens’ run as a public company is about to end and, when that happens, the story here is largely over for investors. Yes, there’s the potential sale of the clinic business, but the outcome there is so uncertain that the chance to benefit will only appeal to more aggressive investors. Over the long term, it is likely that Walgreens eventually finds its way back into the public markets. Hopefully, at that point, it will have revamped the business and again be working from a position of strength.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
