Mark Kleinman: Boots owner Walgreens has shot itself in foot
Mark Kleinman is Sky News’ City Editor and is the man who gets the City talking in his weekly City PM column. This week he tackles the executive chairman of Walgreens Boots Alliance (WBA), EY’s Everest, and Deutsche Numis layoffs.
Boots owner Walgreens has shot itself in foot
Few corporate dealmakers of the last few decades have been as pugnacious and single-minded as Stefano Pessina, executive chairman of Walgreens Boots Alliance (WBA).
As the owner of Boots, Britain’s biggest high street chemist, the fortunes of New York-listed Walgreens are closely watched on this side of the Atlantic – and right now they are no oil painting.
Pessina’s vision is unravelling, as WBA’s businesses face challenges at every turn. Last week’s earnings, which highlighted growing pressure on American consumers, included a big profit warning. The shares sank by more than 25 per cent on the day.
There was also more corporate schizophrenia about the future of Boots, with WBA chief executive Tim Wentworth indicating that a sale or stock market listing of the British is now not under active consideration.
I understand that Walgreens Boots Alliance had been contemplating packaging Boots up with a number of the group’s international assets to provide a growth story attractive to potential buyers.
Yet its latest process appears to have been little more than shambolic, and the decision to discontinue it has prompted the departure of Boots managing director Sebastian James, the incumbent since 2016.
As I revealed at the weekend, James is leaving the Nottingham-based retailer for a role at Veonet, a European chain of ophthalmology clinics owned by buyout firm PAI Partners and the Ontario Teachers Pension Plan.
Recruiting a successor should, in theory, be straightforward: running Boots remains one of the plum jobs in British retailing.
For the sake of its future prosperity, a new prescription – under alternative ownership – is urgently needed
It would be understandable, though, if candidates were wary of accepting the role, given perennial flip-flopping over its future.
WBA’s shares have slumped by nearly 60 per cent in the last year alone, and the company now has a market valuation of just $10.5bn.
That puts it within reach of potential financial bidders – bear in mind that less than five years ago, Boots’ parent was approached about a record leveraged buyout deal that would have been worth more than $70bn in equity and debt.
Boots’ performance in the last three years has actually outshone that of its parent, with 13 consecutive quarters of market share growth. For the sake of its future prosperity, a new prescription – under alternative ownership – is urgently needed.
EY’s Everest looks a steep climb for UK business
Talk about having Everest to climb. EY’s new global boss, Janet Truncale, was swift to rule out a revival of the Big Four auditor’s audacious plan to break it up into two firms after the proposal was abandoned last year.
“There is huge power in our global scale and connectivity,” she told thousands of staff in a memo last week. “So looking ahead, we’re going to recommit to working together — with EY clients, our ecosystems, and each other — as one organisation.”
EY insiders believe that over time, some disposals of business units are probable, but nothing equating to the revolutionary structure that would have materialised if its audit and consulting businesses had been split in two.
The break-up – codenamed Everest – may be off, but the firm faces sizeable challenges, not least in the UK. I reported in April that EY had told its 1700 UK partners that profits in its latest financial year could slide by as much as 15%.
That would take average partner profit down to below £650,000 – a figure that would place the firm closer to smaller rivals Grant Thornton and BDO than to its usual big four counterparts of Deloitte, KPMG and PricewaterhouseCoopers.
This prospect, I understand, is causing considerable consternation in its partner ranks, adding an additional degree of jeopardy to the selection of a new chair and managing partner.
Hywel Ball’s announcement last month that he would step down earlier than his planned exit date of June 2025 has fired the starting gun on a search for his successors.
The books were closed on EY’s financial year last weekend. The disclosure of its 2023-24 profit-per-partner figure in the coming months will be even more keenly awaited than usual – and present a headache for its incoming leadership.
Deutsche Numis layoffs another sign of City’s weak IPO pipeline
General election dynamics aside, it’s been another important week for the City’s mid-cap brokers. On Monday, Panmure Liberum, created from the merger of Panmure Gordon and Liberum, was officially born.
Already, executives have embarked on an integration plan entailing dozens of job cuts across the firm.
They aren’t the only redundancies taking place in the sector, though. I hear that in recent days Deutsche Numis has let a number of senior brokers go, with about half of them from the Numis business acquired by Deutsche Bank last year.
With equity markets activity only in the foothills of a recovery, and the ranks of brokers’ listed clients thinning as a result of delistings and takeovers, this wave of rightsizing is inevitable.
Steven Fine, Peel Hunt’s chief executive, spoke recently of “a tentative recovery” in IPO activity, part of which has been fuelled by the successful stock market debut of Raspberry Pi (on which the bank worked).
That’s probably a fair summary, although – putting online fashion giant Shein to one side – London’s IPO pipeline is not exactly bursting with attractive growth companies. Changing that will take substantial shifts in the way equity investors allocate capital.
Don’t hold your breath.