WBA stock is trading down on Wednesday after rallying earlier this week on reports that the company was exploring a $70 billion USD privatization deal.
Walgreens Boots Alliance (NASDAQ:WBA) has been facing a litany of issues as of late, the most glaring of which are its role in the opioid crisis and the pending litigations as a result of that, and an increasing trend of consumers buying prescription drugs online rather than in-store. With WBA stock in freefall throughout 2019, the company has held preliminary talks with some of the world’s largest private equity firms in what could be the biggest leveraged buyout deal ever.
When Reuters broke the story on Tuesday, WBA stock initially surged 8% in New York; however, those gains have since been dashed as investor optimism in the viability of the deal and the likelihood of it actually happening have faded. Last week, the company warned investors that it did not expect its adjusted earnings to grow in fiscal 2020 because of the low reimbursement rates for prescription drugs, especially generics, and competition from online retailers such as Amazon (NASDAQ:AMZN).
To add further doubt to the possibility of a deal, Walgreens has $15 billion USD in debt on its balance sheet, meaning any potential bidder or group of bidders would have to add more leverage in order to fund the buyout. When a premium on the current share price is factored in, any possible suitor would have to stump up a hefty sum in order to take the company private. Profit in Q4 plunged 55% from the same period last year, and with margins coming under increased pressure, it looks incredibly hard for the people at the top of the company to sell the deal.
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Walgreens doesn’t exactly have a fantastic history with big-money deals either. In 2017, the company was forced to drop a $17.2 billion USD deal to take over Rite Aid Corp (NYSE:RAD) after failing to pass antitrust regulations, instead opting to buy nearly 2,000 Rite Aid stores. Since then, the company has been forced to close 200 of those stores under what it describes as a “transformational cost management program.” WBA stock is down nearly 30% this year, currently trading at $58.67.
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