New York
Cnn
–
Walgreens has been trying a financial turn for years, and now she says a new road has been found to complete it. But if the story is a guide, her way is more likely to lead to its eventual breakdown than long -term success.
Walgreens Boots Alliance, who owns the Pharmacy in both the United States and the United Kingdom, Ireland, Mexico and Thailand, announced last week that it would end a century as a publicly traded company, and would be sold to Sycamore Partners, a private capital firm.
Less than a decade ago was the largest chain of pharmacies in America, and his stock was successful to replace the iconic General Electric iconic conglomerate in the industrial average Dow Jones, a collection of 30 companies selected for their importance to the economy and the general market.
But its shares have lost 83% of their value since that day, with a decrease of 71% coming only in the last four years. And would have lost more than that if it weren’t for investors waiting for sale Sycamore, which set up more than 7% shares in Friday’s trade.
Sycamore and Walgreens have insisted that the purchase will allow the company, which has already closed many of its stores, complete the turn faster.
“As we are progressing against our ambitious turning strategy, creating significant values will take time, concentration and change that is best managed as a private company,” said the Walgreens Tim Wentworth. “Sycamore will provide us with the expertise and experience of a partner with a strong record of successful retail curves.”
But despite the promise, the retail cemetery is full of the bones of many once–Prevailing retailers who closed the store after being purchased by private capital firms. The list includes Toys R US, Sports Authority and Radioshack – all formerly leaders in their fields. Even some companies that survived by taking private survivors, such as airostal, did so only after a trip to the bankruptcy court.
Not all private retail sellers have failed. Some, such as the products owned by the Sycamore, continue to do well. But there are many reasons to be skeptical that this is the right solution, said Mark Cohen, a former retail at Columbia Business School.
“Intellectually sounds like a good idea to facilitate a company of need for quarter in the quarter to satisfy shareholders and instead focus on long -term success,” Cohen said. “But from a historical point of view, most of these agreements show that the company circulates drainage.”
The private capital business model often relies on the company’s obligation to receive large amounts of debt to give the largest possible return to the private capital firm, with long -term survival of business often non -priority. Debt is often used to pay “special dividends” for the firm itself to cover the initial purchase price, as well as the “management fees” of heavy company set to the company that will be paid to the private capital firm. Many times the brick and mortar retail chains have been forced to sell the buildings that shelter their stores and pay rents that they cannot afford to new owners, leading to even more shops.
Neither Sycamore nor Walgreens had a comment when asked about the story of closing retail sellers after being taken private.
Since last August, Walgreens had about 8,500 shops in the United States, and 3,700 foreign countries. This is sitting with about 1,000 US shops and 1,000 foreign stores from where he stayed when he joined the Dow in 2018. There are more closures of the shops to come after the company announced plans in October to close 1,200 other stores.
Walgreens himself was gathered by Dow a year ago and replaced by Amazon, who is offering its growing competition with an online pharmacy. Walgreens has been passed by CVS as the largest chain of pharmacies in the country. Both Walgreens and CVS and Rival Rite-AID have been fighting due to lower levels of reimbursement for prescription medicines, damaging the pharmacy business at the back of the store, and increasing competition not only from the Amazon, but by the retailers of the big box such as Walmart and Target, which often sell the same stores.
Regardless of whether Sycamore can fix problems with Walgreens, it is likely to do well in the agreement, given that he is taking the chain in a portion of its previous value and because of the way agreements have been structured to benefit from private capital buyers, Cohen said.
“The road to paradise is to fix the business and then get it public and make a large sum of money because you are a shareholder,” Cohen said.
But this is not often the way things play. “The typical road is to milk the business as long as you can, then break it down and dispose of it,” Cohen added.
The basic problems that lead to the purchase of private capital do not leave this agreement, according to Cohen.
“What is it about this transaction that will result in the recovery of this? In my opinion, nothing. Will they be able to compete better with CVS or Amazon? No. Will they be able to rationalize the behavior they had to be involved in closing the toothpaste, rather than finding any other way to protect their clients Amazon? “The network of this is that it is just the deck chair on the titanic moving.”