A Walgreens breakup into three companies would move away from the industry trend of consolidating healthcare services.
A report last week that Walgreens parent Walgreens Boots Alliance would divide up into three businesses would involve selling or spinning off Boots UK, which has more than 1,800 stores overseas “ranging from local community pharmacies to large destination health and beauty stores,” the company’s website says.
In the U.S, Walgreens retail pharmacies would also be separated into a different company. And a third company would include the fast-growing specialty pharmacy business, which Walgreens has already been highlighting as a $24 billion enterprise.
“While the company would initially be taken private as a whole, Sycamore (Partners) plans to separate Walgreens’ three main businesses into their own units with distinct capital structures,” The Financial Times reported in its four-byline story.
News of a potential Walgreens breakup comes as rival CVS Health is committed to keeping all of its businesses including its retail pharmacies and growing Oak Street senior health center operation. CVS also owns the nation’s third largest health insurance company in Aetna and one of the nation’s largest pharmacy benefit management (PBM) companies in Caremark. Owning a health insurer and PBM allows those CVS companies to buy services from its provider operations at discounts for health plan enrollees as well as employer and government clients.
“We have the leading PBM, the best-run pharmacy in this country, a storied franchise through Aetna, and industry-leading healthcare delivery assets,” CVS chief executive David Joyner told analysts in November on the company’s third quarter earnings call not long after he replaced Karen Lynch as the company’s top executive. “Our collection of businesses and omnichannel capabilities allows us to lead the industry forward with innovative and market-moving solutions.”
Over the last decade or longer, Walgreens has resisted getting into the business of paying for healthcare operating without owning a PBM or health plan. That, some analysts say, was a strategic mistake.
But Walgreens effort to package more healthcare services in or attached to its retail pharmacies has been rocky to say the least. Under former chief executive Roz Brewer, Walgreens spent billions of dollars investing in and operating physician-staffed clinic operator VillageMD.
Walgreens invested more than $6 billion in VillageMD under Brewer to take a controlling stake, but the company has already scaled back dramatically on the expansion of doctor practices and clinics the company opened attached to Walgreens. In 2020, Walgreens said it planned to open 500 to 700 “Village Medical at Walgreens” physician-led primary care clinics in more than 30 U.S. markets over five years, with the “intent to build hundreds more thereafter.”
But Walgreens CEO Tim Wentworth, who replaced Brewer in October 2023, said a year ago that Walgreens and partner VillageMD have slowed the number clinic openings in part because the operators haven’t been able to fill their “patient panels,” which are a certain number of individual patients under the care of a specific provider.
Meanwhile, Walgreens, which has been closing stores and cutting costs, reported a net loss of $265 million, or 31 cents a share in its fiscal first quarter ended Nov. 30 of last year. That compares to a year-ago loss of $67 million or 8 cents a share.
Walgreens has not commented on any speculation the company would be taken private by Sycamore or whether any breakup was in the works. And any sale of Walgreens would likely need the support of Italian billionaire and former company CEO Stefano Pessina, who holds a 17% ownership stake in Walgreens.
But Walgreens has already been looking to sell off some healthcare assets such as its stake in VillageMD. And Wentworth’s focus on turning around the company has included reducing debt. Walgreens stake in Cencora has dropped to 6% from 10% ‘to sell more shares of thhe drug distributor for proceeds of about $300 million.
“Our first quarter results reflect our disciplined execution against our 2025 priorities: stabilizing the retail pharmacy by optimizing our footprint, controlling operating costs, improving cash flow and continuing to address reimbursement models,” Wentworth said in January. “While our turnaround will take time, our early progress reinforces our belief in a sustainable, retail pharmacy-led operating model.”
