Rumors PE Firms Passing on Walgreens (WBA) Stores Seen as Part of Negotiation Process - Deutsche Bank

Deutsche Bank maintained a Buy rating on Walgreens Boosts Alliance (NASDAQ: WBA) with a price target of $94. Analyst George Hill said investors shouldn't read too much into a New York Post story on lack of private equity interest in buying 650 stores being offered by Walgreens and Rite Aid to satisfy FTC concerns on their merger. Hill continues to expect the transaction to close in very late 2016 or early 2017 and he believes Walgreens will find buyers that satisfy the FTC.

"The NY Post reports that private equity firms are passing on the ~650 stores being offered by Walgreens and Rite Aid to satisfy FTC concerns on their merger. The report states that the PE firms are concerned that the stores are not high quality and are spread throughout the country. We believe this is part of the negotiation process and continue to expect the transaction with Rite Aid to close. We also suspect the article is sourced using one or two private equity executives (only one is quoted), and caution investors not to read too much into the story," said Hill.

The analyst added, "While the article indicates that Walgreens and the FTC are looking for a single buyer for the 650 stores, we never expected private equity to buy a large number of stores. We continue to expect multiple strategic buyers to emerge, including CVS, regional chains, and food & mass merchandise companies. CVS (NY Post), Kroger (Tampa Bay Business Journal) and Fred’s (thestreet.com) have all been mentioned in the media as potential buyers of the divested stores. We would expect the initial offer from Walgreens to include less attractive stores and at higher than desired valuations. Over time we expect the negotiation to result in groups of stores being acquired by different buyers where the stores fit with their current footprint or by PE firms at bargain valuations. CVS was mentioned in the article as a potential buyer in certain regions, and we have noted in previous reports that we believe CVS could buy the lion’s share of the divested stores."

For an analyst ratings summary and ratings history on Walgreens Boosts Alliance click here. For more ratings news on Walgreens Boosts Alliance click here.

Shares of Walgreens Boosts Alliance closed at $80.97 yesterday.

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