Texas-based McKesson Corp., a pharmaceutical distribution giant, is reportedly exploring the sale of the Rexall pharmacy chain, according to inside sources. The potential divestiture comes after a 15-year expansion into the Canadian market and signals a significant shift in McKesson’s business strategy.
McKesson entered the Canadian landscape in 2008, initially acquiring independently owned pharmacies and making a substantial move in 2016 with the $2.9-billion acquisition of Rexall from the Katz Group Canada Ltd. Now, eight years later, the company is in talks with potential buyers to offload Rexall, a chain operating approximately 400 pharmacies and employing around 8,000 people.
While McKesson remains tight-lipped about the sale, sources close to the matter reveal that the company has reached out to prospective buyers. The pool of potential acquirers includes rival pharmacy chains seeking expansion and well-capitalized private equity firms. If a deal materializes, McKesson may still collaborate with Rexall by supplying pharmaceuticals through its distribution arm.
The pharmacy business in Canada presents challenges due to government regulations on drug prices, particularly for generic medicines. Operational costs have surged due to inflation, and shortages of pharmacists in certain regions have posed logistical challenges.
McKesson faced early struggles with Rexall’s profit margins following the acquisition, compounded by new regulations slashing generic drug prices and minimum wage hikes in provinces like Ontario and Alberta. In response, Rexall closed nearly 10% of its pharmacies in 2018, and McKesson warned investors of a substantial after-tax asset-impairment charge tied partly to the Rexall business.
Given the slim profit margins in the pharmacy industry, Rexall sought growth opportunities in the retail sector. The chain diversified its offerings, selling a range of products from cleaning supplies to pain medications. McKesson attempted to enhance Rexall’s retail division in 2019 through a partnership with M&M Food Market and the launch of its own loyalty program, Be Well, in 2020.
Rexall’s efforts to retool included emphasizing health products and integrating the Well.ca online drugstore, purchased by McKesson in 2017, with its physical stores. Despite these initiatives, the changing loyalty landscape saw Rexall move away from the Air Miles program, which eventually filed for creditor protection in 2023.
As McKesson Corp. considers the sale of Rexall, the pharmacy chain’s future remains uncertain. The industry’s dynamic challenges, coupled with ongoing efforts to reposition Rexall in the market, underscore the complexities involved in navigating Canada’s pharmacy landscape.
McKesson Corp. has witnessed leadership changes in its Canadian operations over the years, with shifts in management from Domenic Pilla to Rebecca McKillican and, most recently, to Joan Eliasek. The potential sale of Rexall aligns with McKesson’s broader global reconfiguration strategy, as seen in the company’s divestiture of European businesses in 2021.
Information for this briefing was found via The Globe And Mail and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
