Boots Explores Acquisition of Unwanted In Store Pharmacies from Morrisons

The private equity owner of Boots is considering the acquisition of several unwanted pharmacies belonging to Morrisons. This potential move aims to drive up the value of the health and beauty chain before a possible stock market flotation.

Morrisons has put numerous in-store pharmacies up for sale as part of a strategy to cut costs. The UK’s fifth-largest grocer is reportedly evaluating potential buyers on a site-by-site basis, having found that many of its pharmacies are not financially viable. Boots, recently acquired by Sycamore Partners, is exploring various options, including the possibility of operating selected stores independently.

This acquisition interest comes in the wake of Morrisons struggling following a £381 million loss last year, which has been largely attributed to high borrowing costs. The supermarket chain’s efforts to restructure have already led to the closure of multiple pharmacies, cafes, and convenience stores.

The pharmacy sector faces challenges, including squeezed NHS reimbursement rates and rising labour costs, raising execution risks for any prospective buyer. Sainsbury’s recent exit from the in-store pharmacy business serves as a cautionary example, as Lloyds Pharmacy withdrew from supermarkets completely.

Sycamore Partners, which purchased Boots for around $10 billion last year, is exploring ways to enhance the chain’s value prior to an initial public offering or a sale. The firm intends to follow a strategy of holding for one to two years to maximise value before an exit.

The competitive landscape for the grocery sector highlights the growing challenges posed by inflation and shifts in consumer behaviour. With a significant portion of Morrisons’ customer base comprising pensioners and other less affluent groups, these factors have influenced the company’s recent trading environment.