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Mizuho raised the potential takeout range in a possible leveraged buyout for Walgreens Boots Alliance Inc (NASDAQ:WBA) to as high as $71 a share, but said something closer to $67 is more likely.
The Analyst
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Mizuho analyst Ann Hynes raised the potential takeout range to $64-$71 per share, up from an initial analysis projecting $60-$67 per share. Hynes has a Neutral rating on Walgreens with a $59 price target.
Hynes said there is a "willing debt market for a deal like WBA at an appropriate pro forma leverage." She said the most likely scenario analysis yields an internal rate of return of 23% for whomever might sponsor the LBO, if it happens.
Background
Bloomberg reported recently KKR & Co Inc (NYSE:KKR) has approached Walgreens with a possible proposal for a take-private deal for the pharmacy chain that could be the biggest leveraged buyout in history. That followed a Reuters report that Walgreens was looking for possible private equity partners to take the company private.
See Also: A Closer Look At How A Walgreens Buyout Could Play Out
Analysts have said the deal would require at least $50 billion of debt to fund it.
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That's out there, Hynes said.
"Based on conversations with our fixed income counterparties at Mizuho Securities, we believe there is a willing debt market for a deal like WBA," Hynes wrote in a note. "Given the size of the potential deal (roughly $70 billion), we suspect there would need to be more than one private equity player involved and management participation," noting current CEO Stefano Pessina owns about 16% of the outstanding Walgreens shares.
The Numbers
Hnes said a realistic pro forma leverage on such a big deal would be six times. With an equity investment of 37%, that yields a take-out share price of $67. Increasing the share of the debt that is from equity to 40% and keeping the six times pro forma leverage, you get to $71, Hynes said.
Mizuho believes, however, "the $67 range is more reasonable."
Deerfield, Illinois-based Walgreens, which operates Walgreens and Duane Reed pharmacies in the United States, and Boots in Great Britain, has a market capitalization of more than $56 billion and holds more than $16 billion in debt.
Price Action
Walgreens shares were down 0.43% Tuesday, trading at $61.69.
Photo credit: Mike Mozart, Flickr
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.