Sycamore Partners closes the acquisition of Walgreens, divides the retailer into 5 companies

Diving brief:

• Walgreens is officially a private company after the sale of $ 10 billion from the retailer in difficulty to the Sycamore Partners in -vestment company closed on Thursday.
• In the future, the health subsidiaries of Walgreens Shields Health Solutions, Carecentrix and Villagemd will work as separate companies. The Boots group, the International Retail Pharmacy Chain of Walgreens, will also be excited, creating five autonomous companies.
• Sycamore named the retail veteran Mike Motz as CEO of Walgreens, replacing the current CEO Tim Wentworth. Motz has previously been CEO of Staples US Retail, a Sycomore portfolio company and president of the Canada Drug Mart pharmacy chain.

Diving insight:

The rumors of the sale of Walgreens swarmed for months before its announcement in March, while the main retail pharmacy company of the company had trouble and a pivot to offer health services did not give the expected return on investment.

Walgreens shareholders massively approved the sale in Sycamore and the former CEO of Walgreens Stefano Pessina in July, after Wentworth said The purchasing coalition could have leadership expertise to help the retailer to resolve the front financial pressures.

Although Wentworth is replaced as CEO, the executive will remain with the company as a current director, said the company. John Lederer, former director of Walgreens and Sycamore principal advisor, was appointed executive president of Walgreens.

Carecentrix, Walgreens’ home health sector, will maintain its leadership structure in place, with Steve Horowitz at the helm as CEO. At the time of the press, the primary care chain Villagemd had not yet published details on how the acquisition could have an impact on its leadership structure.

“Today represents a fascinating new chapter and a turning point for Walgreens,” said Motz in a statement on Thursday. “As a private organization, alongside our dedicated members of the team, we are renewing our concentration on our basic pharmacy and retail platform, our stores and our customer experience – based on the progress made.”

Not everyone is enthusiastic about the agreement. The project of investigating stakeholders, which is charged as an annual surveillance organization the impacts of private investment, said in March that it was “very suspicious” to the agreement, noting that several of the Sycamore portfolio companies have filed a bankruptcy.

The surveillance group also noted that Sycamore seems to pay for the acquisition using mainly debt, which could leave Walgreens financially vulnerable over the entire line.

“This tactic of lever-seat redemption of companies belonging to investment capital with substantial debt, often draining resources that could otherwise be invested in innovation, the development of labor or adaptation to market changes,” said the organization of its March report.

The agreement occurs more than a year after Walgreens has been demoted by credit rating agencies. Analysts warned that the company had trouble tackling the fall in the margins of the pharmacy and the drop in retail sales.

Part of the financial difficulties of Walgreens also stems from his business in the health care area.

Walgreens spent billions of dollars by investing in medical clinics through his company Villagemd. However, the retailer did not see the benefits materialize as quickly as the leadership would have liked, which led Walgreens to close the sub-performative clinics. Last year, Walgreens said he was considering a full sale of the primary chain operator.

Despite the entry into a recovery plan, in particular the reduction in costs and the considerably reduction of its store footprint, the company continued to report heavy losses this year. In the third quarter, Walgreens declared a net loss of $ 175 million, a drop of $ 519 million compared to the same period last year.

Walgreens also continued to wear high debt levels before the sale, declaring $ 429 million in short -term debt and nearly $ 7 billion in long -term debt during the nine -month period ending on May 31.

The Sycamore Partners portfolio includes several other retail brands which were once on the verge of financial difficulties, including Belk, Staples and Lane Bryant. The investment capital company does not have in-depth exposure in health care.