Why Walgreens fell from its peak—can going private save it?

Fortune

Walgreens was worth $100 billion a decade ago—but years of bad deal-making left it with too many stores and a heavy debt burden.  Fortune's Phil Wahba explains what went wrong, and how the chain can save itself.

Transcript

00:00So you might have noticed that your local Walgreens has a lot of merchandise locked up

00:03and that's been one of the main reasons their business has bled

00:07and the company is in a lot of trouble.

00:09Walgreens drugstores get revenue from two sources.

00:12One is the front of the store where you buy your PepsiCo and your chocolate bars.

00:17The other part is filling prescriptions.

00:20But the two work together.

00:21So if you neglect one, like they neglected their stores,

00:24that makes people say,

00:25I don't really want to go to Walgreens to pick up my prescriptions as much.

00:28And so then both parts of the business start to fall and it becomes a doom loop for both.

00:33Well, what they're trying to do now is they're closing a lot of their stores.

00:37They're trying to become more efficient with costs,

00:40but they're also just trying to have more sway with the drug companies as well

00:46because about three quarters of their drugstore revenue comes from filling prescriptions.

00:51So Walgreens reached a deal to be bought by Sycamore earlier this year for $10 billion.

00:56But, you know, it was worth $100 billion a decade ago.

00:59The people I spoke to for the story think that going private will allow Walgreens to make those tough decisions.

01:05But one of the things that they have to do is reach a new agreement with the drug companies

01:10and fix those reimbursement rates.

01:12And being private will allow it to do that better and more easily.

01:16I think one of the things that sort of surprised me, or I was reminded of it,

01:20is how much history this company has.

01:22You know, it goes back to the 1920s.

01:24By the 1930s, it already had 500 stores and it was in many major markets.

01:28They pioneered the drive-thru pharmacy.

01:30And it just shows you how far a company can fall,

01:33a company that was once so innovative and leading.

01:35And a few missteps and, you know, they're really on a tight wire now.

01:41And we'll see if they make it.

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