Why did a company with a capitalization of $ 55 billion think about leaving the exchange

Over the past few days, foreign media have been discussing the possible withdrawal of Walgreens Boots Alliance from the stock exchange, which is the largest pharmacy operator in the world. The company's capitalization is about $ 55 billion, it operates more than 9,000 pharmacies combined with stores in different countries. Nevertheless, the company's management is developing a plan for leaving the exchange.

Why was such a scenario possible, and what are the companies guiding in such situations? We understand in our new article.

Note: any investment activity on the exchange is associated with a certain risk, this must be taken into account. In addition, to use the methods described in the article, you will need a brokerage account, you can open it online. You can study trading software and practice performing operations using test access with virtual money.

What happened

Information has leaked to the press that the leadership of the Walgreens Boots Alliance is actively working on the preparation of a delisting procedure, that is, the removal of shares from the exchange.

Recently, it was not very successful for the company. Walgreens shares are trading on the Nasdaq and are falling in price. The decline was 22% over the past 12 months.

At the same time, over a longer time period, the share price increases. However, the company is experiencing a number of problems. One of the main ones is that its business model works worse in the conditions of fierce competition with online retailers. A significant part of Walgreens revenue is not even selling drugs, but various related products from food to shampoos. And all these people are increasingly buying online.

As a result, Walgreens is forced to cut costs – by the end of the fiscal year 2022 it is planned to reduce from $ 1.8 billion. The company has already closed about 200 stores in the US and 200 more will close in the UK.

In addition, the company suffers from high competition. Its main rival, CVS Health, a network of pharmacies and stores, took over the acquisition of Aetna insurance company last year. The deal amounted to $ 69 billion, it was considered for a very long time by the antimonopoly service, but was eventually approved. In turn, Walgreens planned to buy the Rite Aid retail chain for $ 17.5 billion, which would give it another 4,600 stores. However, regulators refused a deal with such parameters, approving only the purchase of 1932 stores for $ 4.37 billion.

Why do companies leave the exchange

Transactions on leaving a public company from the exchange are called take-private. Typically, during such transactions, a consortium of private-equity funds redeems listed shares. This is done in the expectation of an increase in their value, as well as profit from the activities of the company – if it is traded on the stock exchange, its revenue can amount to billions of dollars.

For the management and shareholders of the company that most leaves the exchange, monetary motivation also plays a role. If the shares have fallen and are not growing in price, then the premiums of top management and founders can be reset, and it is difficult for investors to earn money on their investments. At the same time, in take-private transactions, buyers usually pay a premium of 20-40% of the current share price. As a result, everyone is happy – management receives its premiums, and investors have the opportunity to profitably “exit” (or at least minimize losses from investments).

Which companies went through this process

In the USA, the number of companies leaving the exchange every year is in the tens, while in Russia, Dixy shares were delisted.

Analysts at Pivotal Research Group, a reputable Wall Street company, suggested in 2018 that Snap (the owner of Snapchat) might want to go through the delisting process. Allegedly, the company does not compete with Facebook and other social services, which is why not its shares can not show good results. Since then, Snap shares are still traded on the stock exchange and have risen in price compared to the period when similar forecasts were made:

In addition, a couple of years ago, dissatisfaction with the life of Tesla as a public company was expressed by its founder Ilon Musk. His statements that the manufacturer of electric cars may leave the exchange caused a serious scandal. The American Securities and Exchange Commission (SEC) was extremely dissatisfied with such statements by the head, as they caused serious fluctuations in the value of Tesla shares. As a result, Musk was fined $ 20 million and was forced to leave the board of directors of the company. Tesla shares are still traded on the stock exchange and show good results.

It is possible to buy shares of foreign companies from Russia without opening a separate brokerage account with foreign brokers. Such shares are traded on the St. Petersburg Exchange's foreign securities market. Today, more than 500 liquid shares of leading companies in all sectors of the world economy, including all shares of the S&P 500 index, have been admitted to trading.

Useful links on the topic of investment and stock trading:

  • Open a brokerage account online
  • Test account with virtual money
  • Software for trading on the exchange: trading terminal, mobile applications
  • Structural Products
  • Model Portfolios

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