03:56 PM EST, 12/11/2024 (MT Newswires) -- (Updates to include responses from Walgreens and Sycamore on the WSJ report.)

Walgreens Boots Alliance's ( WBA ) potential take-private deal with Sycamore Partners is likely to face "many challenges" and has a less than 25% probability of materializing, Deutsche Bank said in a note e-mailed Wednesday.

The drug-store operator is in discussions to sell itself to the private-equity firm in a deal that could close in early 2025, The Wall Street Journal reported Tuesday, citing sources. In separate statements e-mailed to MT Newswires Wednesday, Sycamore said it didn't have any comment on the report, while Walgreens said it doesn't comment on "rumors or speculation" about its business.

Walgreens shares were down 7.2% in Wednesday late-afternoon trade following an 18% jump in the previous session. The stock has lost nearly 63% in value so far this year. The WSJ attributed the slump to growing pressures on the company's pharmacy and retail businesses.

"We see many challenges to getting a Walgreens take private across the goal line," including its high level of debt, retail pharmacy headwinds and Sycamore's likely inability to pull off the transaction, Deutsche Bank analyst George Hill said in a note to clients.

In October, Walgreens reported fiscal fourth-quarter adjusted net earnings of $0.39 a share, down from $0.67 a year earlier, while sales rose 6% to $37.55 billion. For fiscal 2025, the company expects adjusted EPS of $1.40 to $1.80 on sales of $147 billion to $151 billion.

Walgreens said at the time it planned to close about 1,200 stores over the next three years, with around 500 closures planned for 2025. "In fiscal 2025, we are focusing on stabilizing the retail pharmacy by optimizing our footprint, controlling operating costs, improving cash flow, and continuing to address reimbursement models to support dispensing margins and preserve patient access for the future," Chief Executive Tim Wentworth said in an Oct. 15 statement.

Deutsche Bank's Hill wrote that this is not the first time a take-private story targeting Walgreens has emerged. In 2019, private-equity giant KKR (KKR) reportedly made a nearly $70 billion offer for Walgreens.

"The transaction would be a big fish to swallow for mid-market Sycamore and could require the sponsor find equity partners to get the deal to completion," Hill said. "In short, we see a less than 25% probability of a deal getting done and believe the shares are overbought."

Walgreens is scheduled to report first-quarter results Jan. 9. A year earlier, the company reported adjusted EPS $0.66 on sales of $36.71 billion.

Price: 9.80, Change: -0.62, Percent Change: -5.95