Investing.com -- Deutsche Bank downgraded Walgreens Boots Alliance (NASDAQ:WBA) stock to Sell from Hold in a note Friday following reports of a potential three-way breakup of the company. 

Analysts at Deutsche Bank express skepticism about the feasibility of a deal that would require a premium to the current share price.

"The deal strikes us as incredibly complicated and unlikely to be consummated at a premium to the current share price," Deutsche Bank analysts stated. 

The Financial Times reported ongoing discussions between Walgreens and sponsor Sycamore regarding a take-private deal, which would divide the company into three distinct entities: Walgreens US, Boots&Europe, and non-core US assets.

Deutsche Bank analysts believe that "WBA’s share price running well ahead of most sponsors’ IRR hurdle" makes a deal at current levels difficult. 

They suggest that a "take-under could occur or Sycamore will be forced to walk away." The analysts cite an "unusually high degree of uncertainty around this proposed deal," questioning the allocation of liabilities and the ability to secure financing.

Furthermore, Deutsche Bank noted the company's significant debt obligations. "WBA has about $4.7B of its $8.04B in long-term debt coming due in 2025 or early 2026," and analysts anticipate increased financing costs. 

They also point to potential liabilities, including opioid-related claims and tax obligations, which could further impact the company's financial stability.

"Our SOTP is Hard to Square," analysts admit, referencing their sum-of-the-parts valuation, which indicates a value of approximately $9 per share, lower than the current trading price. 

"At the current share price, we see ~20% downside potential to our sum of the parts-based valuation, supporting our downgrade."

Deutsche Bank acknowledges the potential controversy of downgrading a stock amid takeover discussions. However, they believe that "deal reports have driven the share price to overshoot what a sponsor is willing to pay." 

They have reduced their price target for WBA to $9 from $11, reflecting the potential liabilities and challenging market conditions.

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