According to a Reuters report citing four unnamed individuals, the largest drugstore chain in the U.S., Walgreen has chosen Bank of America to explore the possible sale of a majority stake (over 50%) in its infusion services business, in a deal that could value the division at around $1.5 billion. These sources suggest the proposed sale has already attracted interest from private equity firms.
Infusion therapy is the practice of administering specialty drugs to patients intravenously, either via injection or catheters, in a variety of settings. Walgreen has significantly expanded its Infusion Services business with a number of acquisitions over the years. In 2010, the company acquired Omnicare’s home infusion business in exchange for its long-term care pharmacy business. In 2012, Walgreen purchased Crescent Pharmacy, an infusion pharmacy business, for around $73 million.
Walgreens Infusion Services division offers infusion services at home and at care centers across the U.S., with a staff of more than 1,600 clinicians. Its infusion therapies are used for medical conditions such as bleeding disorders, cancer therapies and other maladies requiring the intravenous injection of pharmaceutical or blood products. The company is currently the largest U.S. provider of home-infusion services. As of May 31, Walgreen had 91 infusion and respiratory services facilities.
Infusion services is a growing market, and thus it is not very clear to us why Walgreen would be willing to sell its business. The NHIA estimates the size of the alternate-site infusion market at roughly $9 billion to $11 billion per year, serviced in large part by more than 1,500 infusion pharmacy centers. That market is growing at roughly 15% a year. In an effort to expand its presence in the Infusion services space, rival CVS Health acquired Coram LLC, the specialty infusion services and nutrition business unit of Apria Healthcare Group Inc, for about $2.1 billion in January 2014.
In our opinion, the transaction will not have any material impact on Walgreen’s financials and valuation. The Infusion Services business of Walgreen has EBITDA of around $105 million, which accounts for less than 3% of the company’s total EBITDA.
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Our price estimate of $64 for Walgreens is slightly higher than the current market price.
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