Walgreens considering selling all of its VillageMD business
In a recent SEC filing, Walgreens acknowledged the existence of defaults under the VillageMD Secured Loan.
Photo: Courtesy Walgreens
Walgreens Boots Alliance is considering selling all of its VillageMD primary care clinics, according to a filing with the Securities and Exchange Commission.
The company is evaluating options in light of ongoing investments into VillageMD and its substantial ongoing and expected future cash requirements, Walgreens said in the August 7 filing.
"These options could include a sale of all or part of the VillageMD businesses, possible restructuring options and other strategic opportunities," Walgreens said.
WHY THIS MATTERS
Walgreens has been facing financial pressure due to a changing retail environment and increased regulatory and reimbursement challenges on the pharmacy end, according to its Q3 earnings report from June.
VillageMD, as well as some other pharmacy clinics, have faced the challenge of making the clinics a scalable solution.
On August 5, Walgreens Boots Alliance stock hit a 52-week low of $10.62, according to Seeking Alpha. Year to date, shares are down about 59%.
In the recent SEC filing, Walgreens acknowledged the existence of defaults under the VillageMD Secured Loan. On January 3, 2023, Walgreens had provided VillageMD senior secured credit facilities in the aggregate amount of $2.25 billion. This consisted of a senior secured term loan in an aggregate principal amount of $1.75 billion and a senior secured credit facility in an aggregate original committed amount of $500 million.
Walgreens is actively engaged in discussions with VillageMD's stakeholders and other third parties with respect to the future of its investment in VillageMD, it said.
On August 8, Walgreens announced the pricing of an underwritten public offering of senior unsecured notes consisting of $750M aggregate principal amount of 8.125% notes due 2029. The sale of the notes is expected to close on August 12.
WBA said it intends to use the net proceeds from the offering, together with cash on hand, for the repayment and/or retirement of its outstanding 3.800% notes due 2024, and to use any remaining amounts for general corporate purposes.
On August 1, WBA announced it had sold all of its remaining unencumbered shares of Cencora, a drug wholesale company, for $818 million, and, subject to the completion of the sale, a concurrent share repurchase by Cencora in the amount of $250 million.
Proceeds will be used primarily for debt paydown and general corporate purposes, as the company continues to build out a more capital-efficient health services strategy rooted in its retail pharmacy footprint, Walgreens said.
THE LARGER TREND
During the Q3 earnings call on June 27, CEO Tim Wentworth said the company intended to reduce its stake in VillageMD. This was part of a strategy announced earlier in the year to close unprofitable VillageMD clinics in order to cut $1 billion in costs.
Walgreens also announced at that time plans to shutter up to 25% of its retail stores that were unprofitable.
Email the writer: SMorse@himss.org
