The US owner of Boots is to be taken private in a $10bn (£7.8bn) deal that will mean further uncertainty for thousands of workers at the UK-based pharmacy chain.
Walgreens Boots Alliance, which operates more than 1,800 Boots stores in the UK, has been sold to the US private equity firm Sycamore Partners. The chain has been struggling as customers turn to online shopping for cheaper products.
Walgreens’ market value has collapsed by 90% since 2015 and is valued at $9.3bn. It has debt and lease obligations of $30bn.
Sycamore Partners has struck an $11.45-a-share deal for Walgreens Boots Alliance, giving it an equity value of about $10bn.
Sycamore is expected to retain the US retail business and sell or spin off the rest, including the UK chemist chain Boots, which traces its roots to John Boot’s first Nottingham store in 1849.
Boots has more than 50,000 employees, including at its headquarters in Nottingham, who face further uncertainty after more than three years of speculation over its future ownership.
In a letter to staff, seen by the Guardian, Ornella Barra, the head of Walgreens’ international business including Boots, said the deal was a significant development for the division, adding: “It’s important to note that nothing is changing today.”
In 2022, Walgreens put Boots up for sale with a suggested price tag of up to £10bn but later dropped the plans as potential buyers, including Mukesh Ambani’s Reliance Industries, the US private equity investor Apollo Global Management and Asda’s owners TDR Capital, struggled to raise funds. A plan to float the business at a valuation of about £7bn was dropped last year.
Russ Mould, the investment director at AJ Bell, said Sycamore was likely to seek a swift sale of Boots to a private equity buyer in the first instance as it “will care more about making money now rather than later”.
Mould said “considerable headwinds” for UK retailers, including rising costs and low consumer confidence as household bills continued to rise amid global political and economic difficulties, may make Boots a tough sell. Fears are also growing for hundreds of WH Smith stores as its listed owner tries to sell its estate of more than 500 shops on the high street to focus on its more successful travel arm.
However, in recent years, Boots has improved its pricing, closed hundreds of ageing stores and improved its beauty ranges to benefit from a shift among young people towards spending on cosmetics and beauty products rather than fashion. It could also benefit from the Labour government’s shift towards primary healthcare in which pharmacies are expected to play a bigger role.
Patrick O’Brien at the retail analysts GlobalData said a successful sale of Boots would depend on whether Sycamore was prepared to accept a lower figure than the “ludicrous valuation” previously sought by Walgreens.
He said: “Boots has improved dramatically since then but the valuations that were talked about when they were trying to sell a while ago were ridiculous in terms of multiples of revenues or profits.”
Nick Bubb, an independent retail analyst, said: “The Boots business looks eminently floatable, but we will probably have to wait until this time next year to see it attempt an IPO as its new owner, Sycamore, won’t complete the takeover of Walgreens until [the last three months of] this year.”
Walgreens first took a stake in Boots in 2012 and completed a buyout two years later. In 2020, during the coronavirus pandemic, Boots said it was cutting 4,000 jobs, about 7% of its workforce, and shut almost 50 of its opticians branches.
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Two years ago, the chain announced the closure of 300 shops, which it completed at the end of last year, as it “evolved” its store estate.
The deal will bring an end to Walgreens’ 98-year run as a listed company, although the second-largest pharmacy chain in the US still has 35 days to seek or entertain rival bids.
As part of the deal with Sycamore, the Italian billionaire Stefano Pessina, the Walgreens executive chair and the largest shareholder, will keep a minority shareholding in the business. Barra told staff Pessina would remain a significant owner alongside Sycamore.
Pessina forged the transatlantic pharmacy company by merging the US-based Walgreens with Alliance Boots of Europe in 2014, having paid £4.3bn to take a 45% stake in the business in 2012.
The Pharmacists’ Defence Association (PDA) said news of the buyout “may be particularly worrying to pharmacists and other employees who have so recently seen what happened in the UK community pharmacy sector in the case of LloydsPharmacy [where the entire chain was broken up and sold off to independents].”
Walgreens’ market value peaked at $100bn soon after the completion of the merger but it has declined over the past decade as e-commerce has hit its high street trading operation.
Tim Wentworth, the chief executive of Walgreens, said the company was navigating the “challenges of a rapidly evolving pharmacy industry and an increasingly complex and competitive retail landscape”.
