Dive Brief:
- Walgreens is considering a sale of its specialty pharmacy business Shields Health Solutions as the struggling retail chain attempts to improve its halting finances, according to a Bloomberg report.
- Shields could be valued at more than $4 billion in a sale, and a deal might appeal to private equity firms or healthcare companies, Bloomberg said, citing sources familiar.
- Walgreens is in the midst of a shift to focus on delivering healthcare services to payer, provider and pharmaceutical clients. But the company’s U.S. Healthcare division — which Shields is a part of — isn’t currently profitable.
Dive Insight:
Walgreens took full ownership of the specialty pharmacy in 2022 in a “major milestone” for the company’s healthcare strategy, then-CEO Roz Brewer said at the time.
Shields grew sales by 27% in its first quarter of 2024, driven by new contracts and growth in existing deals.
But Walgreens’ U.S. Healthcare unit — which also includes businesses like primary care chain VillageMD and at-home care provider CareCentrix — still posted a $96 million adjusted operating loss, even as sales increased and its losses narrowed compared with the same period last year.
Walgreens is about halfway through its planned closures of 60 VillageMD clinics that it hopes will accelerate profitability in the unit. The company has also conducted corporate layoffs to cut costs.
Tim Wentworth, a former Cigna executive who took the reins as Walgreens’ CEO in the fall, acknowledged “growing pains” in the healthcare segment during the company’s first quarter earnings call. Wentworth said he joined the chain “with everything on the table” to improve Walgreens’ financial position.
But TD Cowen analysts questioned the rationale behind selling Shields. The specialty pharmacy could be the highest margin business in the U.S. Healthcare segment, so a sale could slow the unit’s drive to break even, Charles Rhyee, Lucas Romanski and Adam Efrem wrote in a note on Tuesday.
Getting rid of U.K. pharmacy chain Boots might make more sense, they added.
“That said, regaining investment grade rating is important for [Walgreens Boots Alliance] and Shields is likely the more sellable asset currently,” the TD Cowen analysts wrote. “At the end of the day, however, we would find selling Shields a strange move and would look to better understand the rationale if the decision to sell is ultimately made.”
Walgreens hasn’t yet made a decision to sell, and could ultimately decide to keep Shields, sources familiar told Bloomberg.
Walgreens didn’t immediately respond to a request for comment.