Walgreens Leaders Look to Lighten Village Stake

Leaders at Walgreens Boots Alliance Inc. are preparing to divest at least part of their investment in primary care chain VillageMD, which plays a vital role in the company’s health care delivery strategy.

Chief Executive Tim Wentworth, who took over Illinois-based Walgreens last fall, and his team view their plan to reduce their 53 percent stake in Village as part of a simplification of its health care portfolio that is itself part of a broader strategic review. On a June 27 conference call with analysts to discuss Walgreens’ fiscal third-quarter earnings, Wentworth said Walgreens leaders plan to retain a stake in the combined company, which also includes Summit Health and CityMD and operates about 520 clinics in more than 15 markets across the country.

“We believe in the future of these companies and intend to remain investors and partners,” Wentworth said. “But as part of our ongoing focus on value creation, […]We are collaborating with leadership toward an endpoint to rapidly unlock liquidity, improve optionality, and position them for additional growth.”

Wentworth did not specify exactly how much of Village it wants to sell or the timeline for doing so. Mary Langowski, whom Wentworth hired earlier this year to replace John Driscoll as director of health care services, told analysts that the company plans to “invest in capital-intensive services to be a broader partner across the industry, with a variety of providers and with a variety of payers, as well as a variety of pharmaceutical manufacturers.”

The decision to divest part of Village comes three months after Wentworth and Chief Financial Officer Manmohan Mahajan said they were taking a $5.8 billion charge against earnings because of Village’s financial performance and book value relative to other clinic chains. That news came a few months after Wentworth told analysts and investors it did not plan to buy any more primary care assets.

Wenworth and Mahajan also announced on June 27 that steps in their strategic review include closing or “repositioning” a quarter of Walgreens’ roughly 8,600 U.S. retail stores. That news and their comments about a still-challenging consumer spending environment sent Walgreens shares tumbling (Ticker: AMB) more than 22 percent to $12.19, reducing its market capitalization to $10.5 billion, half its level last October.

During the three months ended May 31, when Walgreens as a whole booked a net profit of $230 million on sales of more than $36.3 billion—Village’s sales grew 7% to $1.6 billion as its clinics became more patient. Walgreens’ U.S. healthcare group as a whole, which also includes home care provider CareCentrix and Shields Specialty Pharmacy, posted an operating loss of $22 million, a big improvement from the prior-year period and in line with leaders’ forecasts.

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