Walgreens Boots Alliance may sell its entire stake in doctor-staffed clinic operator VillageMD, which has already cost the drugstore giant billions of dollars.
“The company is currently evaluating a variety of options with respect to VillageMD in light of ongoing investments by the company in VillageMD’s businesses and VillageMD’s substantial ongoing and expected future cash requirements,” Walgreens said in a filing Wednesday with the U.S. Securities and Exchange Commission. “These options could include a sale of all or part of the VillageMD businesses, possible restructuring options and other strategic opportunities.”
Walgreens chief executive officer Tim Wentworth, who took over as the company’s top executive last October, told analysts in June the company would remain an investor and partner, but is working with VillageMD’s management “toward an endpoint.” Walgreens held a 53% ownership stake in VillageMD as of the end of June.
It’s unclear given the financial losses at VillageMD how much Walgreens stake would even be worth if a buyer was found.
Walgreens invested more than $6 billion in VillageMD under former chief executive Roz Brewer to take a controlling stake, but the company has already scaled back dramatically on the expansion of doctor practices and clinics the company opened attached to Walgreens. In 2020, Walgreens said it planned to open 500 to 700 “Village Medical at Walgreens” physician-led primary care clinics in more than 30 U.S. markets over five years, with the “intent to build hundreds more thereafter.”
But Wentworth said earlier this year that Walgreens and partner VillageMD have slowed the number clinic openings in part because the operators haven’t been able to fill their so-called “patient panels,” which are a certain number of individual patients under the care of a specific provider.
Meanwhile, the decision to scale back to less than 90 Village Medical at Walgreens locations today has put the business “on a clearer path to profitability as it continues to add lives and optimize its cost structure,” Wentworth said in June.
The investment hasn’t gone well. Walgreens total operating loss for the first nine months of fiscal 2024 has grown to $13.1 billion, reflecting “a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a $5.8 billion charge attributable to WBA, net of tax and non-controlling interest.”
In Wednesday’s SEC filing, Walgreens said it provided VillageMD in January of 2023 “senior secured credit facilities in the aggregate amount of $2.25 billion, consisting 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.”
And last Friday, Walgreens and VillageMD “acknowledged the existence of defaults under the VillageMD Secured Loan,” the SEC filing disclosed. Tuesday of this week, Walgreens and VillageMD “entered into a forbearance agreement whereby the Company has agreed not to exercise remedies, subject to VillageMD’s compliance with the conditions set forth therein, and the Company is actively engaged in discussions with VillageMD’s stakeholders and other third parties with respect to the future of its investment in VillageMD.”
VillageMD could not be reached Wednesday evening for comment.
Read the full article here