Walgreens Boots Alliance (NASDAQ:WBA) experienced a decline of 5.4% at 2.24pm today, following Deutsche Bank's decision to downgrade the stock from Hold to Sell, accompanied by a reduction in the price target to $9 from $11. Analyst George Hill expressed skepticism regarding the potential buyout by Sycamore Partners, describing it as "incredibly complicated" and unlikely to offer a premium over the current share price. Hill highlighted challenges within Walgreens' core U.S. business, including substantial debt, opioid-related liabilities, and a pending $2.7 billion IRS tax dispute, as factors contributing to the downgrade.
Reports from the Financial Times indicate that Sycamore Partners is considering a strategy to take Walgreens private, followed by a division of the company into three distinct entities: Walgreens U.S., U.K.-based Boots, and Shields Health Solutions. However, the volatile nature of Walgreens' share price has introduced complexities into the negotiations, and there is a possibility that the discussions may not culminate in a finalized agreement.
Deutsche Bank's analysis suggests that the recent surge in Walgreens' stock price, driven by buyout speculation, may be overextended. Hill cautioned that the complexities of the proposed deal, combined with the company's existing financial and legal challenges, could result in a "take-under" scenario, where the acquisition price is below the current market value, or potentially lead Sycamore Partners to withdraw from the negotiations altogether.
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