At the time of Walgreens’ second investment into Shields, former CEO Roz Brewer said the deal would “drive sustainable long-term growth.”
But new CEO Tim Wentworth seems to have other ideas about the best path forward for Walgreens’ multibillion-dollar healthcare strategy. Bloomberg News reported Jan. 23 that Walgreens is looking to sell Shields for more than $4 billion, citing people familiar with the matter.
A potential deal could help Walgreens refine its growing and ever-important healthcare segment, as well as shore up Walgreens’ balance sheet — key for a company that just cut its dividend. And as it's a relatively small part of the business, Walgreens is unlikely to miss it much.
“They're now, as a lot of firms are, in a more profit-oriented, macroeconomy,” says Nathan Ray, a partner at Chicago consulting firm West Monroe. “They're just taking a slightly narrower ambition and probably really focusing on the things that they must win, which is (being) the main street corner for retail health consumers."
“Walgreens is clearly in possession of assets that define what it should become,” Ray adds. “Shields just doesn't seem to be one of them.”
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A Walgreens spokesman declined to comment on the Bloomberg report or the company's strategy with Shields.
Walgreens stock was up 1% on the news of a potential Shields sale, but it quickly dropped back down. The company has struggled to excite investors in recent years. Instead, Walgreens has watched its stock steadily drop. Over the last 12 months, Walgreens shares are down 38%, closing at $23.25 on Feb. 1.
Meanwhile, CVS Health stock is down just 14% over the same time period and closed at $73.92 on Feb. 1.
Walgreens' slumping stock reflects poor revenue and earnings reports over several quarters, issues that, in part, led to Walgreens replacing Brewer and kick-starting an aggressive cost-cutting program. Wentworth told investors in January that “everything" was "on the table to deliver greater shareholder value."
Besides cutting the dividend nearly in half, Walgreens has instituted three rounds of corporate layoffs, closed stores and lowered capital expenditures. Executives told investors in January that Walgreens is on track to save $1 billion by the end of the second quarter of 2024.
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“Tim has been definitely vocal about wanting to right-size Walgreens’ overall operations,” says Keonhee Kim, an industry analyst at Chicago-based Morningstar, adding that any sale proceeds would likely be used to pay down debt.
In December, Bloomberg also reported Walgreens was reviving discussions to offload U.K. drugstore chain Boots, another sign of cost-cutting. Walgreens had abandoned a plan to sell the unit in 2022 after failing to secure the desired valuation.
If Walgreens were to sell Shields, it's unlikely to have a large impact on Walgreens’ healthcare segment or the business overall. While Shields grew 27% to $133 million in the three months ended Nov. 30, it only made up 7% of the healthcare segment’s $6.6 billion in 2023 sales, according to U.S. Securities & Exchange Commission filings.
“I don't think it's going to be a meaningful piece of the business they're going to be losing,” Kim says.
The rest of the healthcare segment houses primary care provider VillageMD, which accounted for 70% of 2023 sales, and post-acute and home care firm CareCentrix, which pulled in 23% of total healthcare revenue.
Possible Shield buyers include other specialty pharmaceutical companies, health systems or private-equity firms, analysts say.
“There's going to be buyers that want to compete. There will also be buyers that maybe want to consolidate,” Ray says. “This is definitely, I think, a good time to at least test interest.”
This story first appeared in Crain's Chicago Business.
