Walgreens continues to shed stake in Cencora as it looks to bolster turnaround

By Bill Peters

Proceeds from stock sale to be used to pay down debt, as Walgreens 'continues to build out a more capital-efficient health services strategy rooted in its retail pharmacy footprint'

Struggling drug-store chain Walgreens Boots Alliance Inc. has sold off shares of drug distributor Cencora Inc., handing the retailer some $1.1 billion in proceeds as it tries to carry out a turnaround plan and pay down debt.

In an announcement on Thursday, Walgreens (WBA) said it had offloaded all of its remaining unencumbered shares of Cencora (COR), which was formerly known as AmerisourceBergen. The move will bring in proceeds of $818 million, with a concurrent share repurchase by Cencora generating $250 million.

Walgreens said the proceeds would be used largely 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." It said the sale did not affect the decade-plus partnership between the companies.

Walgreens Boots Alliance's ownership stake in Cencora's common stock now stands at around 10%, down from roughly 12%. The chain has shed its stake in Cencora over this year.

Shares of Walgreens were down 4.2% on Friday. The stock is down 56.6% so far this year.

Much of that drop came in June, after the company cut its profit outlook to reflect what it said were "challenging pharmacy industry trends" and a "worse-than-expected U.S. consumer environment," as higher prices crimp spending. The company also said that after conducting a review, it expected to close a "significant portion" of underperforming stores over the next three years. Shares had their worst percentage drop on record.

"In retail, despite easing comparisons, we do not anticipate significant improvement in the US consumer spending backdrop," Chief Financial Officer Manmohan Mahajan said on Walgreens' earnings call in June.

"We are especially seeing signs of strain on the lower income consumer, driven by accumulated inflation and depleted savings," he continued.

Walgreens said it would focus more on digital efforts and same-day delivery, tighten up its product assortment and focus more on beauty products and women's health.

More broadly, drug stores have faced lawsuits related to the opioid crisis, friction with labor and competition from telehealth platforms and online giants like Amazon.com Inc. Prescription-drug reimbursements from middleman pharmacy benefit managers are shrinking.

On Thursday, Amazon (AMZN) Chief Executive Andy Jassy, during its earnings call, said his company's own pharmacy business was a "relatively natural extension" of its e-commerce business. He also tried to draw a distinction between in-store service and online service.

"If you walk into pharmacies in cities today, it's a pretty tough experience with how much is locked behind cabinets where you have to press a button to get somebody to come out and open the cabinets for you, and lot of shoplifting going on in the store," he said.

"So the combination of what's happening in the physical world and how much improved we've made our pharmacy experience is driving a lot of customer resonance and buying behavior," he continued.

-Bill Peters

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08-02-24 1359ET

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