£11bn deal set to seal Boots takeover
The battle for retailing giant Alliance Boots looked over today after private equity firm Kohlberg Kravis Roberts floored its rival with an £11bn (€16.2bn) bid.
KKR’s higher offer, backed by Alliance Boots deputy chairman Stefano Pessina, prompted the rival consortium of medical charity Wellcome Trust, private equity firm Terra Firma and HBOS to pull out of the race.
The Terra Firma team had been prepared to offer £10.8bn (€15.8bn) to take Alliance Boots private but said it was “withdrawing its potential interest” following KKR’s move.
The company – created less than a year ago through the the £7bn (€10.2bn) merger of Boots and Alliance UniChem – now looks set to fall into KKR’s hands by July following approval from shareholders.
The Terra Firma consortium described Alliance Boots as a “critically important national institution” and said it was disappointed not to be able to carry out its “bold vision” for the business.
But the £11bn (€16.2bn) price – up from KKR’s opening £9.7bn (€14.2bn) “friendly approach” for the business in March – has also sparked fears from unions over closures and job cuts.
Paul Maloney, national officer of the GMB, wrote two weeks ago to Health Secretary Patricia Hewitt warning that union members feared the bid could lead to hundreds of pharmacies closing.
He said: “The offer has now gone up by another £1bn (€1.5bn) which must put even more pharmacies at risk. The Secretary of State must act now and call in the private equity bidders to explain how the numbers add up.”
Analysts said that KKR may have overpaid for the company. Pali International retail analyst Nick Bubb said: “I think they might struggle to get the right rate of return without big increases in revenues and margins and at the moment it is hard to see where they are coming from.”
KKR will also have to strike a deal with the trustees of Alliance Boots’s £3bn (€4.4bn)-plus pension fund, which could reportedly be £200m (€294m) in deficit after its latest three-yearly revaluation.
The pension trustees are likely to press for increased payments from the new owners to take into account Alliance Boots’s high debt levels following the takeover.
Seymour Pierce analyst Richard Ratner added: “The higher the debt, the more the pension fund trustees are likely to want.”
The knockout blow to the rival bid came after KKR increased its offer price as a result of buying shares in the market at 1139p a share. Takeover rules mean it has to offer all shareholders the same price.
The bid suitor bought more shares later in the day to leave KKR and Mr Pessina with ownership or undertakings to back the bid in relation to nearly 29% of the company. Mr Pessina already has a 15% stake in Alliance Boots.
Alliance Boots said before Terra Firma’s withdrawal that it would recommend shareholders vote in favour of the higher offer from KKR, as nine members of Alliance Boots’s board have already agreed to sell their stakes.
The company is the largest drugs retailer and wholesaler in the UK with 2,600 pharmacies. Boots has traded in Ireland since 1996 and employs 1,200 people in its 40 stores.
Its wholesale business operates in 14 countries, through around 380 depots serving some 120,000 outlets. It has 60,000 staff.
