US pharmacy chain Walgreens purchased Europe-based Alliance Boots a decade ago in what deal architect Stefano Pessina hailed as a “significant milestone”.
As milestones go, this one was planted near the top of a steep hill. Shares of Walgreens Boots Alliance soon peaked and have since fallen almost 90 per cent. The company suspended its dividend last month and has been exploring a sale and possible break-up through a deal with a private equity firm.
The transatlantic drugstore empire, which includes Boots pharmacies in the UK and Walgreens and Duane Reade stores in the US, is being dragged down by forces unsettling the entire industry. Pharmacies have been battling stingier reimbursements for prescription drugs, competition from mass retailers such as Walmart and Amazon and the costs of persistent shoplifting.
But Walgreens also made big strategic moves it is rushing to reverse. During his tenure as chief executive from 2015 to 2021, Pessina spent billions to acquire hundreds of new stores. His successor, Rosalind Brewer, splashed out billions more to build medical clinics before she was replaced. Hundreds of stores and dozens of clinics are now being closed.
The past year “was not without its challenges”, Pessina, now executive chair, and current chief executive Tim Wentworth wrote to shareholders in a letter ahead of the company’s annual general meeting in January. Calling 2025 a “rebasing year”, they added: “We are still in the early stages of this turnaround, and many of our actions will take time.”
Italy-born Pessina and his spouse and business partner, Ornella Barra, built up European drugs wholesaler Alliance UniChem through a series of deals in the years leading up to its merger with Boots in 2006. Pessina and private equity firm KKR bought Alliance Boots for £12.4bn the following year in what was then Europe’s biggest buyout.
Walgreen Co took a 45 per cent stake in Alliance Boots in 2012, then purchased the remaining 55 per cent of the company in a £9bn transaction that closed in December 2014, making Walgreens Boots Alliance a global powerhouse.
Pessina, an irrepressible dealmaker, continued to expand by agreeing a $17.2bn purchase of US pharmacy rival Rite Aid the following year. The takeover was subsequently blocked by antitrust regulators, but Pessina succeeded in acquiring 1,932 Rite Aid stores for $4.4bn in 2018, pushing Walgreens’ global store count to more than 14,000.
“That was distracting, and also got them additional retail footprint exposure at a time when that was a somewhat difficult model,” said Elizabeth Anderson, an analyst at Evercore ISI.
The addition of thousands of new locations came as ecommerce was devouring high-margin product lines such as toothpaste, cosmetics and photo printing. Walgreens has since cut 1,000 stores from its US footprint and intends to close 1,200 more in the next three years. Rite Aid filed for bankruptcy protection in 2023.
Administering tests and vaccines against Covid-19 gave Walgreens a momentary profit boost. But “that tide went out in 2023 and hasn’t stopped receding”, said John Ransom, an analyst at Raymond James.
“The old CEO recognised the problems, to her credit, but then threw $14bn into a trash can and did a bunch of deals,” Ransom said, referring to Brewer, who took over as chief from Pessina in 2021.
A former senior executive at Starbucks and Walmart, she spearheaded healthcare investments including spending $5.2bn to take a controlling stake in VillageMD, a network of primary-care doctors’ offices. Her goal was to build hundreds more under the same roof as Walgreens pharmacies. VillageMD in early 2023 paid $8.9bn for Summit Health-City MD, a US urgent care and doctors’ group.
But not enough patients visited VillageMD’s doctors, and the business is now up for sale. Brewer exited in September 2023 and Walgreens last year took a $5.8bn after-tax charge related to VillageMD, reporting a nearly $9bn net loss for its 2024 fiscal year.
While Brewer was a retail executive who plunged into healthcare, her replacement — a former executive at health insurance company Cigna — is now concentrating Walgreens’ focus on retail. “The cornerstone of our turnaround is stabilising the US retail pharmacy business,” Wentworth told analysts last month.
The company’s more than 1,800 Boots stores in the UK provide a fraction of the broader group’s revenue, but their performance has recently stood in contrast with their American peers. Total comparable retail sales rose 8.1 per cent year on year in the latest quarter, compared with a 4.6 per cent decline in Walgreens’ US retail sales.
Tash Van Boxel, a retail analyst at GlobalData, said that Boots’s presence on most UK high streets had made it “the go-to destination for many health and beauty shoppers”.
The 83-year-old Pessina travelled to London in November for the National Portrait Gallery’s unveiling of a portrait of Florence Boot, the wife of the man who founded the chemist in 1849.
“Boots is an important business. It will be for many years to come,” Pessina told the Sun newspaper.
“The value of WBA has deteriorated so much, the UK is obviously a trophy,” said a UK private equity executive, who knows the sector. “I don’t think they’re ready to move on and any deal would have to be with their blessing,” they added, referring to Pessina and Barra.
Pessina is Walgreens Boots’s largest shareholder with a 17 per cent stake worth $1.5bn. Barra heads overseas business including Boots UK and businesses in Europe, Latin America and Asia.
Walgreens Boots has been in talks to sell itself to private equity firm Sycamore Partners, paving the way for a potential break-up of the pharmacy chain. The Financial Times reported this week that Sycamore planned to separate Walgreens’ three main businesses into their own units with distinct capital structures. Walgreens Boots declined to comment.
John Lederer, a senior adviser to Sycamore Partners and former Duane Reade chief executive, serves on Walgreens Boots’s board. Sycamore declined to comment.
KKR had previously offered $70bn for Walgreens Boots in late 2019, months before Covid-19 swept across the globe. The company’s market capitalisation is now less than $10bn.
Analysts have doubts that a deal will ever take place, pointing to Walgreens’ debt load and declining profitability. Pessina’s more than 145mn-share equity stake could also present complications.
“This speculation has dragged on for three months now, which shows you how difficult it is,” said Jeff Jonas, portfolio manager at Gabelli Funds.
