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Welcome to edition 57 of C-Suite Transitions, a weekly series on InsideArbitrage that tracks appointments and departures at publicly traded companies during the prior week. We highlight five appointments and departures each week by picking the largest companies from the full list of management changes.
Sudden Departures
Key Insights
Walgreens Boots Alliance (WBA): $22.64
Walgreens Boots Alliance, one of the largest drugstore chains in the U.S., was formed in 2014 after Walgreens purchased the remaining 55% of Alliance Boots, that it did not already own. The company operates through three segments – U.S. Retail Pharmacy, International Retail Pharmacy, and U.S. Healthcare.
Management Changes
On September 1, 2023, Walgreens Boots Alliance announced that its Board of Directors and Rosalind Brewer had mutually agreed that Ms. Brewer would step down as the company’s Chief Executive Officer and also leave the board effective August 31, 2023.
Chief Financial Officer James Kehoe resigned from his position and joined FIS (FIS) as Chief Financial Officer last month. Walgreens Boots Alliance appointed Global Controller and Chief Accounting Officer Manmohan Mahajan as Interim Global Chief Financial Officer until a successor is named.
Walgreens’ top two positions now have interim executives in place.
Walgreens Boots Alliance CEO Rosalind Brewer resigned less than three years after she assumed the position. Hand-picked by Executive Chairman and former CEO Stefano Pessina, Ms. Brewer took on her role in March 2021. She previously served as Chief Operating Officer at Starbucks and CEO of Walmart’s Sam’s Club.
Ms. Brewer announced her resignation through a LinkedIn post. “This is perhaps one of the most difficult notes I have ever written over the course of my career, but I wanted to share with you directly that the Board and I have mutually agreed that I will step down as the Company’s CEO and a member of the Board, effective today.”
Ms. Brewer is set to receive a $9 million severance package (twice the sum of Ms. Brewer’s annual base salary plus a target annual bonus). As a special adviser to the company until February 2024, she will receive a monthly consulting fee of $375,000.
Walgreens Boots Alliance appointed Lead Independent Director Ginger Graham as the interim CEO until a permanent CEO is named. For nearly three decades, Ms. Graham has held leadership positions across the healthcare industry.
Peers
With the pharmacy industry experiencing a slowdown in growth, Walgreens is taking a more concentrated approach toward healthcare, with a specific emphasis on home care and primary care. This strategic realignment underscores the company’s determination to broaden its footprint and enhance its presence within the healthcare sector.
CVS Health Corporation (CVS), Rite Aid (RAD), and Walgreens Boots Alliance (WBA) have all attempted to expand further into the healthcare industry, but Rite Aid (RAD) has been hit the most.
Walgreens Abandons RiteAid Merger
In 2016, Walgreens Boots Alliance (WBA) tried to acquire Rite Aid but abandoned its acquisition in June 2017, due to antitrust hurdles. The companies decided to mutually terminate the deal because regulatory approval appeared unlikely. Walgreens paid Rite Aid a termination fee of $325 million and agreed to acquire 2,186 stores from Rite Aid for $5.175 billion. This was pretty much the beginning of the end for Rite Aid. In a fateful decision, Rite Aid shareholders rejected a bid by Albertson’s to go public by merging into Rite Aid.
Rite Aid’s stock is down 96% in the last 3 years and is now a penny stock. Rite Aid is reportedly preparing to file for Chapter 11 bankruptcy in the coming weeks to address its more than $3.3 billion debt load and pending lawsuits related to allegations of oversupplying prescription painkillers amid the opioid crisis.
Walgreens’s stock has declined by approximately 52% since Ms. Brewer joined Walgreens. Under Ms. Brewer’s leadership, Walgreens, much like its larger competitor CVS Health (CVS), has been proactively acquiring primary-care clinics and working towards transforming itself into a comprehensive healthcare service provider.
In December 2017, CVS Health agreed to acquire Aetna for $69 billion and completed the acquisition in November 2018. After taking a long break from large acquisitions, in September 2022, CVS Health paid $8 billion to acquire Signify Health. The company followed that with another large acquisition in February 2023 when it decided to acquire Oak Street Health (OSH) in an all-cash transaction for $39 per share, representing an enterprise value of $10.6 billion. The deal was completed in May 2023.
Walgreens Boots Alliance’s revenue has shown minimal decline, and its gross profit has remained relatively stable. However profits have been scant. In the most recent quarter, the company reported $35 billion in revenue but that translated to just $118 million in net income.
When comparing debt between CVS Health and Walgreens Boots Alliance (WBA), it is evident that WBA hasn’t been as successful in reducing its debt levels as CVS.
CVS Health (CVS) Net Debt
Walgreens Boots Alliance (WBA) Net debt
Strategic Initiatives During Ms. Brewer’s Tenure
During the transformation phase of Walgreens, Ms. Brewer led a series of acquisitions of medical groups.
Notable initiatives during this period include:
On November 7, 2022, VillageMD entered into a definitive agreement to acquire Summit Health for $8.9 billion with investments from Walgreens and Evernorth, the health services business of Cigna Corporation (CI). The acquisition was completed in January this year.
The Wall Street Journal pointed out that Ms. Brewer’s approach to acquisitions differed somewhat from former CEO Pessina’s strategy for forming partnerships. WSJ also reported that Mr. Pessina envisioned a slower expansion into health care, one that was “best achieved through partnerships and minority stakes,” and that he said that “buying up companies outside of the core pharmacy industry unnecessarily exposed Walgreens to risk.”
As she announced her departure, Ms. Brewer stood by her efforts towards the company’s transformation. “Perhaps what I’m most proud of is our work to develop a strategic pivot towards the growth of WBA into health care,” she said.
Opioid Crisis
Last December CVS Health (CVS) and Walgreens Boots Alliance (WBA) reached a settlement agreement in which they will collectively pay over $10 billion to multiple states. This settlement aims to resolve lawsuits that accused the two companies of playing a role in the opioid crisis. Under the settlement, CVS will make payments totaling nearly $5 billion over a span of 10 years, while Walgreens has agreed to pay $5.7 billion over the course of 15 years.
Neither CVS nor Walgreens have admitted to any wrongdoing or liability in relation to the opioid crisis yet.
WBA Loses S&P 100 Spot
Deere & Co. (DE) is set to replace Walgreens Boots Alliance (WBA) in the S&P 100, as announced by S&P Dow Jones Indices on September 2, 2023. This change will be effective as of September 18, 2023. According to the index provider, Walgreens is no longer considered representative of the megacap market space, but it will remain part of the S&P 500.
Valuation
The company has a market cap of $19.62 billion and an enterprise value of $ 64.53 billion on account of $36.45 billion in net debt. It trades at a forward EV/EBITDA of 11.69.
Fiscal 2023 Third Quarter Results (Press Release) (Investor Presentation)
Ms. Brewer during the earnings call stated, “I’d like to start today’s call with an acknowledgment that our performance in the third quarter did not meet our overall expectations, and we are disappointed to have to change our fiscal 2023 guidance.”
Segments
During the fiscal Q3 earnings call, Executive SVP John Driscoll said: “While we’re confident in the range and scale of our health care business, we are disappointed with the pace of our path to profitability. U.S. healthcare missed targets due to VillageMD and CityMD underperformance, directly related to reduced COVID, cold and flu season and softer market demand. We’re taking immediate actions to drive improved profitability. We anticipate this year will remain a transition year as we take action to deliver value and drive profitability.”
Fiscal 2023 Outlook and Preliminary Fiscal 2024 Commentary
Healthcare services is a challenging space to operate in and most large healthcare services firms like 1Life Healthcare end up merging with large companies like Amazon. It looks like both CVS and Walgreens may have bitten off more than they can chew with their rapid expansion into healthcare services and paying up for expensive acquisitions.
Walgreens may have allowed its core business to decline over a prolonged period without making sufficient efforts to maintain or improve it. The CEO exit decision isn’t entirely surprising, considering Walgreens’s declining stock price and its growing emphasis on consumer-centric healthcare. The stock currently trades at a two-decade low. The company is currently looking for a successor with healthcare experience compared to Ms. Brewer who had more experience in retail.
Mr. Pessina quoted, “We advance the search for a successor with deep healthcare experience to lead in today’s dynamic environment.”
Given his impressive track record, I would have been more enthusiastic about Walgreens had Mr. Pessina returned to run the company.
Appointments
1. Choice Hotels International (CHH): $128.99
On August 30, 2023, Choice Hotels International announced the appointment of Scott E. Oaksmith as Chief Financial Officer effective as of September 1, 2023.
| MarketCap: $6.39B | Avg. Daily Volume (30 days): 461,561 | Revenue (TTM): $764.81M |
| Net Income Margin (TTM): 38.72% | ROE (TTM): 125.63% | Net Debt: $1.46B |
| P/E: 22.92 | Forward P/E: 19.16 | EV/EBIDTA (TTM): 15.05 |
| P/S (TTM): 4.39 | P/B (TTM): 117.66 | 52 Week Range: $103.19 – $136.02 |
2. Idex Corporation (IEX): $222.84
On August 30, 2023, IDEX Corporation announced the appointment of Allison S. Lausas as interim Chief Financial Officer of the Company, effective September 15, 2023.
| MarketCap: $16.84B | Avg. Daily Volume (30 days): 501,958 | Revenue (TTM): $3.33B |
| Net Income Margin (TTM): 17.65% | ROE (TTM): 19.35% | Net Debt: $1.12B |
| P/E: 28.85 | Forward P/E: 25.38 | EV/EBIDTA (TTM): 18.95 |
| P/S (TTM): 5.08 | P/B (TTM): 5.14 | 52 Week Range: $193.60 – $244.12 |
3. Nasdaq (NDAQ): $51.60
On August 29, 2023, Nasdaq announced the appointment of Sarah Youngwood as Executive Vice President and Chief Financial Officer, effective as of December 1, 2023
| MarketCap: $24.91B | Avg. Daily Volume (30 days): 2,623,362 | Revenue (TTM): $6.11B |
| Net Income Margin (TTM): 18.07% | ROE (TTM): 18.20% | Net Debt: $4.94 |
| P/E: 22.74 | Forward P/E: 17.57 | EV/EBIDTA (TTM): 15.04 |
| P/S (TTM): 4.11 | P/B (TTM): 4.00 | 52 Week Range: $48.65 – $68.36 |
4. Globalstar (GSAT): $1.51
On August 29, 2023, Globalstar announced the appointment of Dr. Paul Jacobs as Chief Executive Officer effective immediately.
| MarketCap: $2.76B | Avg. Daily Volume (30 days): 7,336,091 | Revenue (TTM): $192.65M |
| Net Income Margin (TTM): -110.65% | ROE (TTM): -66.13% | Net Debt: $302.51 |
| P/E: -12.50 | Forward P/E: N/A | EV/EBIDTA (TTM): 44.96 |
| P/S (TTM): 14.26 | P/B (TTM): 8.68 | 52 Week Range: $0.85 – $2.98 |
5. Rivian Automotive (RIVN): $23.26
On September 1, 2023, Rivian Automotive announced the appointment of Kjell Gruner as the Company’s Chief Commercial Officer and President Business Growth, effective immediately.
| MarketCap: $19.62B | Avg. Daily Volume (30 days): | Revenue (TTM): $136.11B |
| Net Income Margin (TTM): -2.44% | ROE (TTM): -12.59% | Net Cash: $6.98B |
| P/E: -5.92 | Forward P/E: 5.98 | EV/EBIDTA (TTM): 22.59 |
| P/S (TTM): 0.14 | P/B (TTM): 0.93 | 52 Week Range: $11.68 – $40.86 |
1. Rivian Automotive (RIVN): $23.26
On September 1, 2023, Rivian Automotive announced Jiten Behl, the company’s former Chief Growth Officer, separated from the company effective August 31, 2023.
| MarketCap: $19.62B | Avg. Daily Volume (30 days): | Revenue (TTM): $136.11B |
| Net Income Margin (TTM): -2.44% | ROE (TTM): -12.59% | Net Cash: $6.98B |
| P/E: -5.92 | Forward P/E: 5.98 | EV/EBIDTA (TTM): 22.59 |
| P/S (TTM): 0.14 | P/B (TTM): 0.93 | 52 Week Range: $11.68 – $40.86 |
2. Walgreens Boots Alliance (WBA): $22.66
On September 1, 2023, Walgreens Boots Alliance announced that its Board of Directors and Rosalind Brewer had mutually agreed that Ms. Brewer would step down as the Company’s Chief Executive Officer and as a member of the Board, effective August 31, 2023.
| MarketCap: $33.35B | Avg. Daily Volume (30 days): 3,428,204 | Revenue (TTM): $14.57B |
| Net Income Margin (TTM): -161.75% | ROE (TTM): -70.37% | Net Debt: $ |
| P/E: -1.42 | Forward P/E: 9.44 | EV/EBIDTA (TTM): 12.27 |
| P/S (TTM): 2.30 | P/B (TTM): 1.65 | 52 Week Range: $48.11 – $91.12 |
3. Methode Electronics (MEI): $30
On August 31, 2023, Methode Electronics announced that Donald W. Duda, its President and Chief Executive Officer, plans to retire once a successor is found.
| MarketCap: $1.08B | Avg. Daily Volume (30 days): 201,804 | Revenue (TTM): $1.18B |
| Net Income Margin (TTM): 6.54% | ROE (TTM): 8.26% | Net Debt: $177.4M |
| P/E: 14.34 | Forward P/E: 10.95 | EV/EBIDTA (TTM): 8.40 |
| P/S (TTM): 0.94 | P/B (TTM): 1.15 | 52 Week Range: $29.85 – $51 |
4. Nasdaq (NDAQ): $51.60
On August 29, 2023, Nasdaq announced that Ann M. Dennison, the company’s Executive Vice President and Chief Financial Officer resigns effective December 1, 2023.
| MarketCap: $24.91B | Avg. Daily Volume (30 days): 2,623,362 | Revenue (TTM): $6.11B |
| Net Income Margin (TTM): 18.07% | ROE (TTM): 18.20% | Net Debt: $4.94 |
| P/E: 22.74 | Forward P/E: 17.57 | EV/EBIDTA (TTM): 15.04 |
| P/S (TTM): 4.11 | P/B (TTM): 4.00 | 52 Week Range: $48.65 – $68.36 |
5. Globalstar (GSAT): $1.51
On August 29, 2023, Globalstar announced the retirement and resignation of David Kagan effective immediately.
| MarketCap: $2.76B | Avg. Daily Volume (30 days): 7,336,091 | Revenue (TTM): $192.65M |
| Net Income Margin (TTM): -110.65% | ROE (TTM): -66.13% | Net Debt: $302.51 |
| P/E: -12.50 | Forward P/E: N/A | EV/EBIDTA (TTM): 44.96 |
| P/S (TTM): 14.26 | P/B (TTM): 8.68 | 52 Week Range: $0.85 – $2.98 |
Voluntary Disclosure: I hold a long position in CVS.
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