After failing to secure the desired bids, Walgreens Boots Alliance (WBA) has shelved plans to sell its drugstore chain Boots and modern consumer goods company No7 Beauty Co.
According to a report by The Wall Street Journal (WSJ) the pharmaceutical giant bagged significant interest for the units, but because of the poor market conditions, the company could not secure the right valuations.
Turbulent Credit Market
In a report, Bloomberg stated that a consortium led by Reliance Industries and Apollo Global management had shown interest in acquiring Boots. However, they could not agree on valuation, prompting Walgreens to take a U-turn.
Walgreens says no company was able to table an offer that reflects the business’ long-term prospects. According to The Wall Street Journal, earlier this year, there was an indication that Boots, the most extensive pharmacy chain in the UK, could fetch as much as $7 billion. However, market instability severely impacted funding accessibility, making it impossible for companies to reach such valuations.
After abandoning its divestment plans, Walgreens is now expected to focus on accelerating growth and profitability for the two units. According to the company, despite facing a string of challenges, Boots and No7 Beauty have exceeded performance in recent years.
Focus on North America
According to Bloomberg, Walgreens has been pushing for the sale of Boots and No7 Beauty, as it wants to focus on its North American business.
The company is investing a lot in adding primary care centers to its network across the U.S. It has also launched an initiative to enroll more patients in clinical trials. The botched sale is not expected to impact its North American plans.
Amid intense competition from emerging online stores, the push to sell the two units affirms Walgreens’ seriousness towards its other health care businesses. Even with over 2,000 stores in the UK, Boots has been slow in catching up with online players.
Wall Street’s Take
The Street is optimistic about the stock and has a Hold consensus rating based on one Buy, eight Holds and one Sell. WBA’s average price target of $47.7 implies 16.5% upside potential from current levels.
Bloggers’ Opinion
TipRanks data shows that financial bloggers are 84% Bullish on WBA, compared to the sector average of 67%.
Key Takeaway
Walgreens has been exploring the sale of non-core assets, as it looks to focus on its North America business. However, the company is not ready to force any sell unless it is able to unlock maximum value for its shareholders.
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