Walgreens Boots Alliance buyout would be a monster

A deal could value Walgreens Boots Alliance as high as $85 billion.

Walgreens Boots Alliance is looking at a massive windfall if it's taken over by a private-equity firm.

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The retailer, which operates the nation's second-largest pharmacy chain by prescription drug revenue, could see the biggest leveraged buyout in history -- valued at an estimated $85 billion.

Private-equity firm KKR earlier this week approached the retailer about a go-private deal, Bloomberg reported on Monday.

Both Walgreens and KKR have declined to comment.

TickerSecurityLastChangeChange %
WBAWALGREENS BOOTS ALLIANCE INC.58.60+0.02+0.03%

Walgreens shares spiked on the news, before settling at $62.25 a share on Wednesday, giving it a market capitalization of about $55.6 billion.

However, JPMorgan Chase analyst Lisa Gill says a go-private deal could value Walgreens at a much bigger premium.

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In a note sent to clients on Tuesday, Gill said a deal could “imply a maximum transaction value of ~$85 billion, which would imply an equity value of $74.97 per share.” She based the valuation on a debt ratio of 6.5 times, and other financial metrics. Such a valuation would be an approximately 21 percent premium to Wednesday’s share price.

TickerSecurityLastChangeChange %
AMZNAMAZON.COM INC.1,763.41+3.08+0.17%
CVSCVS HEALTH CORPORATION74.34+0.08+0.11%
KRKROGER28.09-0.11-0.39%
WMTWALMART INC.119.62-0.14-0.12%

At $75 a share, Walgreens would still be 15 percent below its 52-week high of $86.31 set on Dec. 4. Walgreens shares have been under pressure over the past year as the company has suffered from falling margins and slowing sales as it competes against Amazon, CVS-Aetna and other rivals such as online pharmacies. Kroger and Walmart are also fierce contenders when it comes to the grocery business.

In the company’s second-quarter earnings statement out April 2, CEO Stefano Pessina blamed continued “market challenges and macro trends” for the “most difficult quarter” since the formation of Walgreens Boots Alliance.

U.S.-based Walgreens merged with Alliance Boots in December 2014, in a deal that combined the nation's largest drug-store chain with Europe’s largest pharmaceutical wholesaler.

A Walgreens Boots Alliance go-private deal would mark the second time that KKR has done business with the drugstore chain. In 2007, KKR reached a $22 billion deal for Alliance Boots, creating the largest leveraged buyout in European history.

That same year, KKR partnered with Texas Pacific Group to do a $45 billion deal for the utility TXU Corp., the largest leveraged buyout in history.

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Walgreens shares are down 8.2 percent this year.