DEFM14A: Walgreens Boots Alliance to Go Private in $11.45 Cash Plus Contingent Value Rights Deal with Sycamore Partners

Walgreens Boots Alliance, Inc. announced a definitive merger agreement to be acquired by affiliates of Sycamore Partners for $11.45 per share in cash plus a contingent divested asset proceed right (DAP Right) potentially worth up to an additional $3.00 per share, taking the company private.

Summary

• A special meeting of stockholders will be held virtually on July 11, 2025, at 8:30 a.m. Central Time, to vote on the merger agreement, an adjournment proposal, and a non-binding advisory vote on executive compensation related to the merger.
• On March 6, 2025, Walgreens Boots Alliance, Inc. (WBA) entered into a definitive Agreement and Plan of Merger with Blazing Star Parent, LLC, an affiliate of Sycamore Partners Management, L.P.
• If the merger is completed, each outstanding share of WBA common stock will be converted into the right to receive $11.45 in cash (Per Share Cash Consideration) and one contingent Divested Asset Proceed Right (DAP Right).
• Each DAP Right provides a contingent right to receive a pro rata portion of 70% of the net proceeds from any monetization of WBA's equity or debt interests in the VPMC Group (Village Practice Management Company Holdings, LLC and its subsidiaries), up to a maximum of $3.00 per DAP Right.
• The Board of Directors (excluding Stefano Pessina and John Lederer due to their affiliations) unanimously determined the merger to be fair and in the best interests of the Company and its stockholders, recommending a vote FOR the merger agreement.
• Approval of the merger agreement requires the affirmative vote of both a majority of outstanding shares and a majority of outstanding shares held by unaffiliated stockholders (excluding Stefano Pessina, John Lederer, Parent, and their affiliates).
• The merger is not subject to a financing condition, with total funds necessary estimated at approximately $18.8 billion, comprising $13.33 billion in committed debt financing, $1.25 billion in committed preferred equity financing, and $2.5 billion in equity financing.
• SP Investors (Stefano Pessina and Alliance Sant Participations S.A.), who collectively own approximately 16.8% of WBA's voting power, have agreed to vote in favor of the merger and to reinvest their cash consideration plus an additional $77,638,645 into the acquiring entities.
• A 35-day 'go-shop' period, during which WBA could solicit alternative acquisition proposals, expired on April 10, 2025, with no superior acquisition proposals received.
• The merger is expected to be completed in the third or fourth quarter of calendar year 2025.
• In January 2025, the U.S. Department of Justice filed a civil complaint against WBA, and in February 2025, a federal court upheld a $988 million arbitration award related to the Everly/PWN Matter, which was subsequently settled for $595 million.
• WBA announced the suspension of its quarterly cash dividend on January 30, 2025, to strengthen its balance sheet and improve free cash flow.

Sentiment

Score: 8

Explanation: The document presents a strong positive sentiment towards the merger, emphasizing the significant premium, liquidity, and strategic benefits of going private, despite acknowledging inherent risks and the contingent nature of part of the consideration. The unanimous board approval (excluding recused directors) and the lack of competing offers during the go-shop period reinforce this positive framing.

Positives

• The Per Share Cash Consideration of $11.45 represents a 29% premium to the closing price of Company Common Stock of $8.85 on December 9, 2024, the last trading day before media reports of a possible transaction.
• The total Per Share Consideration, including the contingent DAP Right, represents a premium of up to 63% to the unaffected closing price of $8.85 on December 9, 2024.
• A significant majority (at least 79%) of the consideration is cash, providing immediate value certainty and liquidity to stockholders upon merger closing.
• The DAP Rights offer stockholders a contingent opportunity to participate in potential future value growth from the monetization of the Divested Assets (VPMC Group) up to an additional $3.00 per share.
• The Board of Directors (excluding recused directors) unanimously approved the merger, deeming it fair and in the best interests of the Company and its stockholders.
• The merger is not subject to a financing condition, increasing the likelihood of its completion.
• Parent has secured substantial committed financing, including $13.33 billion in debt, $1.25 billion in preferred equity, and $2.5 billion in equity, demonstrating financial readiness.
• The SP Investors, holding approximately 16.8% of voting power, have agreed to vote in favor of the merger and to reinvest a significant portion of their proceeds, aligning their interests with other stockholders and facilitating the transaction.
• A 35-day 'go-shop' period was conducted, allowing the Company to actively solicit alternative acquisition proposals, providing a market check for the proposed valuation.
• Stockholders who do not vote in favor of the merger and follow prescribed procedures are entitled to appraisal rights under Delaware law.

Negatives

• The value of the DAP Rights is contingent and uncertain, with no assurance that any payment will be made, or regarding the amount or timing of any such payment, including the possibility that no sale of the VPMC Group will occur.
• DAP Rights are generally non-transferable and will not be marketable or listed on any securities exchange, limiting liquidity for this portion of the consideration.
• The receipt of the Per Share Consideration is a taxable transaction for U.S. federal income tax purposes, with substantial uncertainty regarding the tax treatment of the DAP Rights.
• If the merger is not completed, the Company's stock price would likely be adversely affected, and there could be negative impacts on operations, employee morale, and business relationships.
• The Company may be required to pay a termination fee of $158 million or $316 million under certain circumstances, which could discourage other potential acquirers.
• Restrictions are placed on the Company's business operations prior to the completion of the merger, potentially limiting its ability to pursue new opportunities.
• The transaction involves inherent litigation risk, including potential stockholder lawsuits challenging the merger.
• Executive officers and non-employee directors have certain interests in the merger (e.g., severance, equity treatment, retention bonuses) that may differ from the interests of general stockholders.
• The Company suspended its quarterly cash dividend, impacting current shareholder returns, a decision made to strengthen the balance sheet in light of ongoing challenges.
• Negative due diligence findings by Sycamore, including the estimated increase in the Everly/PWN Matter settlement and the DOJ Opioid Claim, impacted Sycamore's proposed valuation.

Risks

• There is no assurance that any payment will be made under the DAP Rights, or regarding the amount or timing of any such payment, including the possibility that no sale of the VPMC Group will occur or that any valuation will ultimately generate cash proceeds to DAP Right Holders.
• The DAP Rights are generally non-transferrable and will not be marketable or listed on any securities exchange, limiting liquidity for holders.
• The merger may not be completed in a timely manner or at all, due to the failure to satisfy closing conditions (e.g., stockholder approval, regulatory approvals) or other unforeseen circumstances, which could adversely affect the Company's business and stock price.
• Completion of the merger requires various governmental and regulatory approvals, including under the HSR Act, foreign antitrust laws, foreign investment laws, and healthcare notification laws, which may not be obtained or may be subject to conditions.
• Potential litigation challenging the merger could be filed by stockholders, and the outcome of any such future litigation is uncertain.
• While the merger is not subject to a financing condition, there is a risk that the committed debt, preferred equity, or equity financing, or the SP Investors' reinvestment, may not be obtained or funded as expected.
• The U.S. federal income tax treatment of the DAP Rights is subject to substantial uncertainty, which could impact the amount, timing, and character of gain or loss recognized by U.S. holders.
• Restrictions on the Company's business operations prior to the merger closing, as stipulated in the merger agreement, could prevent the Company from pursuing otherwise attractive business opportunities.
• The pendency of the merger could lead to employee distraction and attrition, potentially impacting the Company's ability to attract and retain key personnel.
• The Company may incur substantial costs in connection with the transaction, even if the merger is not consummated.

Future Outlook

Following the merger, Walgreens Boots Alliance will cease to be a publicly traded company, which is expected to allow it to improve its ability to execute strategic initiatives, streamline its corporate structure, and take more decisive actions to address operational and balance sheet issues without the short-term focus of public market scrutiny. The Sycamore Entities plan to continue assessing the Company's business units, potentially selling or disposing of some, or combining them with other businesses, with a potential future sale of the Shields business unit already being explored.

Management Comments

• Timothy C. Wentworth stated on May 29, 2024, that 'The Board was always open to considering proposals that may be in the Companys best interests, but that Sponsor Party A would need to provide a specific proposal in order to progress discussions.'
• Timothy C. Wentworth communicated on June 27, 2024, that 'The Company believed in the future of the Village Businesses.'
• Timothy C. Wentworth expressed on November 21, 2024, that 'The Board expected Sycamore to meaningfully increase its offer price from that set forth in the November 4 Proposal.'
• Timothy C. Wentworth conveyed on March 5, 2025, that 'The Board would not accept any decrease to the closing cash portion of the offer' despite the Everly/PWN settlement.
• Stefano Pessina stated on September 16, 2024, that 'Should an opportunity arise that the Board determines would be in the best interests of all stockholders, he would consider taking any reasonable action necessary to facilitate such a transaction, including, if applicable, considering the possibility of rolling over part or all of his equity interests.'
• Stefano Pessina reiterated on September 16, 2024, that he 'would not condition his support of any transaction on his ability to participate, including through any potential rollover of his equity interests.'
• John Lederer observed on December 23, 2024, that 'as a private company, the Company may have a greater ability to attract critical talent, to streamline the Companys corporate structure, and to take more decisive actions to enable the Company to more quickly improve, among other things, its operations and balance sheet issues, in each case relative to being a high-profile publicly traded company with continual focus on publicly released quarterly and annual results.'

Industry Context

The announcement of Walgreens Boots Alliance's take-private merger with Sycamore Partners occurs within a challenging retail and healthcare industry landscape. The Company has faced a 'worse-than-expected consumer environment' and 'challenging pharmacy industry trends,' alongside significant legal settlements. Sycamore Partners, known for its expertise in the retail sector and turning around companies, aims to leverage the private ownership structure to streamline operations, attract talent, and improve cash flow without the short-term pressures of public market reporting. This move reflects a broader trend where private equity firms acquire public companies to implement long-term strategic and operational changes away from public scrutiny, especially in sectors undergoing significant transformation.

Comparison to Industry Standards

• Centerview's Selected Public Company Analysis for US and International Retail companies indicated a mean EV/NTM EBITDA Trading Multiple of 5.9x, with a selected reference range of 5.0x to 7.0x. Specific comparable companies included Albertsons (4.9x), CVS Health (9.2x), Dollar General (7.0x), Dollar Tree (5.9x), Koninklijke Ahold Delhaize (6.1x), Target (7.5x), and The Kroger Co. (6.7x) for US Retail, and B&M European Value Retail (5.3x), Frasers Group (3.4x), J Sainsbury (3.6x), Kingfisher (4.4x), Marks and Spencer Group (5.7x), and Tesco (6.6x) for International Retail.
• Centerview's Selected Precedent Transactions Analysis for U.S. Grocery and North America General Retail transactions showed a median TEV/LTM EBITDA Multiple of 6.9x, with a selected reference range of 5.5x to 7.5x. Notable transactions included Rite Aid (13.0x), Alliance Boots (12.1x), Duane Reade (~11.4x), Petco (~9.0x), The Fresh Market (8.0x, 7.1x), Supervalu (7.0x), Harris Teeter (7.4x), Save-a-Lot (7.0x), Belk (6.9x), Roundys (6.9x), Smart&Final (6.5x), Nordstrom (5.7x), Safeway (5.5x), Albertsons (5.4x), and Staples (5.0x).
• Morgan Stanley's Public Trading Comparables Analysis for CY2025E P/E multiples showed CVS at 7.4x, Other US Retail at 4.8x, International at 5.9x, Distributors at 5.9x, and S&P 500 at 5.8x, with an implied CY2025E Adjusted EPS range of $7.95-$12.25.
• Morgan Stanley's Illustrative Precedent Transaction Premiums analysis indicated a median one-day premium of 43% for selected U.S. cash acquisition transactions over $1 billion since 2000, with a selected reference premium range of 22% to 51% applied to the Company's stock price.

Management Changes

Corporate Governance

Legal Proceedings

• On January 17, 2025, the U.S. Department of Justice announced it had filed a civil complaint against the Company, alleging the dispensing of millions of unlawful prescriptions and seeking reimbursement from federal healthcare programs (DOJ Opioid Claim).
• On February 10, 2025, a federal court in Delaware upheld an arbitration award of approximately $988 million against the Company in connection with the Everly Health Solutions (formerly PWNHealth) matter.
• On February 25, 2025, the Company announced it entered into a settlement agreement with Everly, agreeing to pay $595 million to resolve all existing claims.
• As of the date of the proxy statement, there are no pending lawsuits directly challenging the Merger.
• The Company has received several demand letters from purported Company stockholders alleging deficiencies or omissions in the preliminary proxy statements filed on April 14, 2025, and May 14, 2025, seeking additional disclosures.
• Potential plaintiffs may file lawsuits challenging the Merger, and the outcome of any future litigation is uncertain.

Related Party Transactions

• Stefano Pessina, Executive Chairman of the Board, and John Lederer, a member of the Board and senior advisor to Sycamore Partners, were recused from Board deliberations and approval of the merger due to their respective interests.
• Stefano Pessina and Alliance Sant Participations S.A. (SP Investors), who collectively own approximately 16.8% of WBA's voting power, entered into a Voting Agreement to vote their shares in favor of the merger.
• The SP Investors also entered into a Reinvestment Agreement with Parent, agreeing to reinvest their aggregate Per Share Cash Consideration received from the merger, plus an additional $77,638,645, into new common equity interests in the Topcos (newly formed entities that will hold WBA's businesses post-merger).
• John Lederer's relationship with Sycamore Partners is noted, as he is a senior advisor to Sycamore and the Chief Executive Officer of Staples, Inc., a Sycamore portfolio company.
• Ornella Barra, Chief Operating Officer, International, and wife of Stefano Pessina, participated in due diligence sessions related to the international business with Sycamore representatives.
• The DAP Rights Agreement establishes a Sale Committee with members appointed by the Shareholder Representative, the SP Investors, and the Parent Entities, aiming to align interests regarding the monetization of Divested Assets.
• An Interim Investors Agreement was entered into between affiliates of Sycamore and Mr. Pessina and his holding company, governing their respective rights and obligations related to the merger and reinvestment prior to the final investors agreement documents.

Stakeholder Impact

• **Shareholders**: Will receive $11.45 cash per share and a contingent DAP Right potentially worth up to an additional $3.00 per share, providing a significant premium and liquidity. However, they will cease to be public shareholders and will no longer participate in the future earnings or growth of the core WBA business (except for the contingent value from VPMC Group via DAP Rights). The transaction is taxable for U.S. federal income tax purposes, with uncertainty regarding DAP Rights.
• **Employees**: Company Equity Awards will be converted into cash and DAP Rights, with unvested awards becoming contingent on continued service. A Retention Bonus Program has been established to promote retention. While no binding post-closing employment agreements are in place for most executives, discussions may occur, and continuing employees may hold new arrangements. There is a risk of employee attrition due to the transaction's uncertainty.
• **Customers**: The Company aims to maintain and preserve satisfactory business relationships with customers, but the pendency of the merger could lead to potential disruptions.
• **Suppliers**: The Company aims to maintain and preserve satisfactory business relationships with suppliers, but the pendency of the merger could lead to potential disruptions.
• **Creditors**: Existing third-party debt will be repaid or refinanced as part of the transaction, and new debt financing of $13.33 billion will be incurred by the Parent Entities.
• **Management**: Executive officers and non-employee directors have specific interests in the merger, including severance payments, treatment of equity awards, and retention bonuses, which may differ from general stockholders. Some directors may also serve on post-merger boards.
• **Regulatory Authorities**: The merger requires various approvals from antitrust, foreign investment, and healthcare regulatory bodies, which could impose conditions or delays.

Next Steps

• Hold a Special Meeting of stockholders on July 11, 2025, to vote on the Merger Agreement Proposal, the Adjournment Proposal, and the Merger-Related Compensation Proposal.
• If the Merger Agreement Proposal is approved and other conditions are met, the merger is expected to be completed in the third or fourth quarter of calendar year 2025.
• Following the merger closing, Company Common Stock will be delisted from Nasdaq and deregistered under the Exchange Act, ceasing to be publicly traded.
• Parent and the Company will effect a reorganization of the Company and its subsidiaries into several distinct business units (Topcos).
• Parent Entities will continue to assess the Company's business units to determine additional changes, including potential sales or combinations with other businesses.
• A potential future sale of the Shields business unit to a specific provider is being explored.
• The Paying Agent will mail letters of transmittal and instructions to holders of record of Company Common Stock promptly after the Effective Time.
• The DAP Right Rights Agent will register DAP Rights in book-entry positions for holders and pay DAP Right Payment Amounts upon the occurrence of specified conditions.
• The Company will announce preliminary voting results at the Special Meeting and publish final results in a Current Report on Form 8-K filed with the SEC.

Key Dates

Recommendation

Keywords

Walgreens Boots Alliance, WBA, Sycamore Partners, Merger, Acquisition, Take-private, SEC filing, DEFM14A, Proxy Statement, DAP Rights, Contingent Value Rights, Healthcare, Retail Pharmacy, Corporate Governance, Financial Reporting, Risk Management, Shareholder Vote, Private Equity, Divestment, VPMC Group, Equity Financing, Debt Financing, Appraisal Rights, Dividend Suspension