Another issue to consider is that any “go-private” deal implies that a merger is effectively a removal of the company from the capital markets. After a 2.6% gain to $61.21 a share on Tuesday, Walgreens has a $52 billion market cap. The company also carries in excess of $17.6 billion in long-term or non-current liabilities, about $11.1 billion of which is direct long-term debt issuance.
A buyer like Buffett might not care what Wall Street Analysts have as a valuation in most investments, but making a deal of this size would be another issue. Refinitiv has seen its consensus analyst target price go down to $56.85 as its shares have slid lower in 2018 until its recent recovery from $50 to back above $60.
One issue that may mask the situation is that Walgreens is buying back stock. While revenues are expected to post between 2% and 3% growth in 2019 and 2020, what would the situation look like without buybacks? What if Walgreens has continued, or dare anyone even ask “more,” exposure to potential opioid liabilities that have wrecked so much value? If that liability continues as an overhang, Walgreens actually might need the public markets if it has to access capital.
There are many points that can be made about any potential deal-making strategy when it comes to Walgreens. The company has ample resources to raise capital, and recall that Walgreens walked away from a deal to acquire Rite Aid Corp. (NYSE: RAD) after antitrust issues rose, only to acquire about 40% of its store instead. Regulators may have done the Walgreens shareholders a favor.
It’s no simple task to go out and get a $52 billion acquisition accomplished, and it’s no simple task to put together a premium acquisition price that would prevent a shareholder revolt. How many stocks in the Dow have managed to get acquired or take themselves private?
Anything is possible in this market, but investors who want to buy into Walgreens Boots Alliance better be wanting to own the stock because they think the value in the future will be more all on its own and as a public company. Buying based on hopes of a buyout can of course be profitable if a deal comes, but the “if” seems to be a rather large factor at a time when Wall Street has become so negative that the investing community’s average price target is below where the stock is trading now.
Again, anything is possible. Making a deal of this sort in reality with real-world problems and money is something else.