Walgreens to Go Private? Stock Soars, But What Does it Mean for Consumers?

What Happened?

Walgreens' (WBA) stock surged by nearly 20% after news the company may be bought out by private equity firm Sycamore Partners, as reported by The Wall Street Journal.

The report claims that the pharmacy chain and Sycamore Partners, a New York-based private equity firm specializing in retail and consumer investments, have discussed a deal that could happen early next year.

Since Sycamore Partners typically focus on smaller acquisitions, it "would likely sell off pieces" of Walgreens to make the deal more financially manageable, the Journal reported.

In 2017, Sycamore partners acquired Staples Inc. in a $6.9 billion deal.

The news instantly brought Walgreens’ market value up to about $9.2 billion from just around $7.6 billion.

Why it Matters

The second-largest pharmacy chain in the U.S., behind its rival CVS, has struggled compared to its $100 billion valuation a decade ago, and is down more than 60% on the year.

Reuters reports the struggles are linked to weak consumer spending amid inflation and low reimbursement rates for filing prescriptions among other economic changes affecting operations.

Walgreens has closed hundreds of stores after it underwent a leadership change.

Current CEO Tim Wentworth implemented a $1 billion cost-cutting plan that includes the removal of multiple mid-level executives, and closures of 1,200 stores over the next three years.

Walgreens was unsuccessful when it previously attempted to go private in 2019 valued at more than $55 billion at the time.

This shift among U.S. pharmacy chains has become a common theme following the COVID-19 pandemic, as rival company Rite Aid also closed hundreds of stores and declared bankruptcy last year to restructure in this new market.

After the pandemic pushed more consumers online, customers bought less and less from these brick-and-mortar pharmacy stores.

In addition, as Time reported, Pharmacy Benefit Managers (PBMs), who operate on behalf of insurance companies, have offered lower compensation for each drug these pharmacies dispense.

As a result, this has forced most pharmacies to operate at a loss, increasing the probability of Americans living in pharmacy deserts.

How it Affects You

These changes ultimately affect how consumers get their prescription medications.

Large chains like Walgreens, along with smaller pharmacies need to figure out what to do with their bricks-and-mortar operations, and whether it’s worth keeping them.

While online shopping may be more convenient than visiting a pharmacy, many Americans still prefer the personal interaction and advice from their pharmacist.

If the pharmacies can no longer afford to keep stores open, this could have a major negative impact on the quality of healthcare received by the American consumer.