Walgreens shares are rising on reports that it could be taken private

new York
CNN
—

Walgreens is reportedly looking to delist in a deal with Sycamore Partners, which sent its stock up nearly 20% on Tuesday.

The Wall Street Journal reported that the troubled drugstore giant and the private equity firm are discussing a deal that could close early next year. Walgreens Boots Alliance (WBA) told CNN it does not comment on rumors and speculation.

Details of the possible deal are still being clarified. Because Sycamore focuses on smaller stores, it would “likely sell parts of Walgreens” to make the acquisition more financially manageable, the Journal said.

Sycamore did not comment on the Journal’s report.

Similar to rivals CVS and Rite Aid, Walgreens has closed hundreds of stores in recent years and struggled with declining prescription reimbursements, sending the company’s value down to just under $8 billion from $100 billion a decade ago. Walgreens shares are down 60% for the year.

In October, Walgreens announced it would close about 1,200 locations. Approximately one in seven Walgreens currently open will close its doors by 2027. There are currently nearly 9,000 locations in the United States.

These closures represent a significant increase from the announcement in June, when the company said it would close 300 underperforming locations as part of a multi-year optimization program under CEO Tim Wentworth. At the time, the company said about a quarter of Walgreens stores were unprofitable, and the chain promised “immediate” changes.

Selling to private equity “would be an elegant solution to create value for investors,” said Neil Saunders, managing director of GlobalData. He added that Sycamore could sell the British chain Boots to “maximize its returns.”

“Walgreens is a big company with big problems, and this would be a longer-term investment rather than a way to make a quick buck,” Saunders wrote in a note on Tuesday. “Cuts would certainly be on the agenda, but the path to growth would be more difficult as healthcare, pharmaceuticals and retail all have inherent problems that are not easily solved.”

The Walgreens closures come at a difficult time for drugstore chains, which are under pressure on several fronts. The chains have struggled in recent years with lower prescription drug reimbursement rates and new competition from Amazon, leading to a decline in profits.

The front end of drugstores, which sell snacks and household staples, is also under pressure from larger competitors, including Target. Even Dollar General’s growth has hurt rural drugstore chains.