Walgreens stock jumped after it was reported that private equity firm KKR & Co. formally approached the drug and supplement retailer with would be the largest leveraged buyout in history, according to Bloomberg.
The move could knock a previous deal out of the top spot for biggest buyout. In 2007, KKR and Texas Pacific Group struck a $45 billion deal for the utility TXU Corp., the largest leveraged buyout in history.
Walgreens has a market value of about $53 billion and $16.8 billion in debt. It is the largest retail pharmacy in the US and Europe, with more than 18,000 stores in 11 countries, according to its most recent annual report.
Private-equity giant KKR is a global investment powerhouse with everything from research to media to technology and real estate listed in its portfolio. In a previous deal in the dietary supplement arena, in 2017 KKR bought global health and wellness manufacturer Nature's Bounty.
KKR and Walgreens have history together. Walgreens CEO Stefano Pessina worked with the private equity firm in 2007 to acquire Alliance.
The retail pharmacy is eyeing its options to take the company private as the changing pharmacy landscape proves challenging. The potential leveraged buyout is playing out as Walgreens looks for new ways to compete with CVS Health. Last year CVS bought Aetna, the nation’s third largest health insurance company, for $69 billion.
In 2017, Walgreens bought about 2,000 stores from Rite Aid, after the companies scrapped merger plans over regulators’ concerns.
Walgreens has 18,750 stores globally. Its wholesale arm has more than 400 distribution centers that deliver to more than 240,000 pharmacies, doctors, health centers and hospitals. Most of its revenue (75%) comes from the US pharmacy business.
Walgreens' role in the opioid epidemic
The retail pharmacy is embroiled in a federal lawsuit that seeks to hold Walgreens and other businesses responsible for the nation’s opioid crisis.
According to the Washington Post, “Walgreens dominated the nation’s retail opioid market from 2006 through 2012, buying about 13 billion pills — 3 billion more than CVS, its closest competitor, according to a Drug Enforcement Administration database of opioid shipments. Over those years, Walgreens more than doubled its purchases of oxycodone.”
During the peak of the opioid epidemic, Walgreens handled nearly one out of every five oxycodone and hydrocodone pills shipped to pharmacies across the US, according to the DEA pain pill database.
Walgreens called the database “misleading” because the records are seven years old and the retailer stopped the internal distribution of controlled substances to its pharmacies in 2014.
Last month Walgreens Boots Alliance (the formal name of the holding company) posted full year revenue that was up slightly over the prior year at about $137 billion. But profits slid, causing the company to project flat earrings in the coming year. The company also said it was raising its cost cutting targets by an additional $1.8 billion by 2022 and it struggles with closing unprofitable locations and dealing with the effects of scaled back tobacco sales.