|Traders Alert – News And Movers Today|
Over reaching or flying too close to the sun are the two things you dont want to do. KKR has been under the magnifying glass on this deal . A toppy stock market , high valuations carries a great deal of risk.
BUT on the positive side if Walgreens can be fixed , look at the success of CVS and the consumer market for pharmacy items has been expanding rapidly as populations around the world explode .
Cash plus KKR shares in trade we feel the deal is still alive and we see an $80.00 target on stock
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700 MPH Train Coming Soon
Rumors regarding a leveraged buyout of Walgreens Boots Alliance have been circling around over the past week.
It now seems as if KKR might be willing to take WBA private with a price tag of $70 billion, or about $77.50/share.
We believe that $70 billion would be a real stretch and investors should be happy even with a 10% lower valuation.
Either way, it’s was and remain clear for us that WBA is worth no less than $70, but no more than $77.50, per share.
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Walgreens Boots Alliance shares surged amid speculation that the U.S.-listed drugstore group has been considering a $70 billion take-private deal.
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If private equity can pull it off, it would be the biggest leveraged buyout ever, dwarfing the $45 billion transaction in which energy group TXU was taken private in 2007, just a year before the financial crisis rocked global markets and prompted unprecedented intervention by global central banks.
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Financing a buyout deal on the scale of a Walgreens deal today could be a big challenge.For one, Walgreens WBA, already has $15 billion in debt on its balance sheet. A potential bidder would need to add more leverage to fund the purchase. That would leave the drugstore chain particularly vulnerable when the credit cycle turns — which is looking increasingly likely.
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Factor in a premium on the current stock-market valuation and the total cash needed becomes quite dizzying. All this at a time when risky corporate loans are rapidly piling up on Wall Street’s books.
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The volume of leveraged loans has reached $3.4 trillion worldwide, according to estimates from the Bank of England. Credit quality has deteriorated, with most new leveraged loans being issued by companies that have high levels of debt as compared with their earnings.
Worse, the share of new leveraged loans with no maintenance covenants — requiring the borrower to maintain certain financial buffers such as a debt-to-Ebitda ratio, or earnings before interest, tax, depreciation and amortization, of less than five times — has tripled since 2007, the U.K. central bank said.
Banks are already struggling as investors steer clear of hefty private-equity debt packages.
Take Bain Capital’s $4 billion buyout of market-research firm Kantar in July. The U.S. private-equity firm lined up 11 banks to assemble a $3 billion debt package.
But after an underwhelming reaction from the market, the banks had to restructure the debt package to make it more palatable to investors. This included raising the pricing on the loans and tightening the covenants.
Secondly, Walgreens finances aren’t looking so good. The company’s profit in the fourth quarter plunged 55% to $677 million, compared with the same quarter in 2018. And margins are under increasing pressure as the price Walgreens pays for generic drugs continues to fall, but not as fast as the amount customers pay.
Walgreens is even more exposed than its competitors to pricing demands because it doesn’t own pharmacy-benefit managers who play an outsize role in drug pricing.On top of all that, the timing for such a behemoth transaction couldn’t be worse, with political resistance almost a certainty.
Private-equity groups are under intense scrutiny from Democratic presidential candidates, with Sen. Elizabeth Warren calling for greater federal regulation of the industry.She has compared buyout firms to vampires, saying they are “bleeding the company dry and walking away enriched even as the company succumbs.
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