Mark Kleinman’s Column: Walgreens needs different prescription for future of Boots
As an octogenarian with a literary penchant and more than half a century in business behind him, Stefano Pessina will be as aware as anyone of “time’s winged chariot hurrying near”.
But is his sense of the passing of time in danger of impairing the judgement of the notoriously dogged and astute Italian dealmaker?
The question arises because Walgreens Boots Alliance is nearing a decision about the future of Boots, Britain’s biggest chain of high street chemists. Perhaps Pessina will pull another rabbit out of his well-worn M&A hat by achieving a blockbuster price of more than £6bn for the company.
That seems unlikely, for a number of reasons, not the least of which is that the bidder who knew Boots best – CVC Capital Partners executive Dominic Murphy and a WBA board member – withdrew early on in the process, sceptical about the seller’s price expectations.
Of the remaining bidders, Sycamore Partners, which recently bowed out of the Ted Baker sale process, has always appeared an unlikely standalone contender given Boots’ size; that leaves Asda and its billionaire sibling shareholders the Issas, with partners TDR Capital, and a joint bid from Apollo Global Management with Reliance Retail, the Indian behemoth headed by Mukesh Ambani, Asia’s richest man.
Reliance is said to be keener on the idea of a franchise agreement to roll out Boots outlets across its home market than on owning Boots itself, while both Apollo and Asda are known for their pricing discipline, with the latter’s shareholders on the brink of walking away.
Then there’s the obvious hurdle of the current state of financing markets, with debt increasingly hard to obtain for leveraged buyout deals, and – where banks are willing to provide it – significantly more expensive.
Another obstacle: how to resolve the conundrum of Boots’ £8bn pension scheme, one of the largest private sector retirement funds in Britain. A £4bn guarantee provided by WBA, and from which the New York-listed group would like to extricate itself, is likely to trigger a significant discount to the sale price, depending on how it is dealt with.
That all adds up to a weaker-than-expected sale process for one of the British high street’s most historically significant brand. Indeed, one executive close to the business believes its real valuation sits within the £3bn-£4bn bracket.
At that level, Pessina might be better-advised to show Boots’ bidders the door and sit tight in the hope that the chain can finally play the role in delivering digital healthcare and wellness services proportionate to its still-hefty store presence.
Pulling the auction might feel like a failure to an arch-dealmaker, but selling it for a truly knockdown price would be the wrong prescription for Pessina.
New era dawning for English football?
Football – bloody hell. The famous words of Sir Alex Ferguson could equally have been appropriated by the myriad parties who felt defeat being snatched from the jaws of victory during the £4.25bn battle for Chelsea FC.
With the Blues’ takeover now complete, plenty of people are asking whether, despite the chaotic circumstances that triggered the sale, whether the resulting deal might become a template for club ownership in English football’s elite league.
The so-called ‘anti-Glazer’ provisions included in the contract make that a question worth asking: a ban on dividends or meaningful share sales by the controlling investors for ten years, strict limits on the amount of debt that can be placed on the club, and restrictions on management fees give Chelsea a fighting chance of financial prudence in the post-Abramovich era.
Their inclusion is pitched perfectly during a period of intense scrutiny of the ownership and governance of English clubs. An independent regulator is now merely a matter of how and when, not if, with the key outstanding questions focused on its structure and whether it sits under the aegis of the Football Association or elsewhere.
Nevertheless, it’s hard to envisage such stringent conditions as the ones attached to the Todd Boehly-Clearlake Capital takeover of Chelsea becoming the norm. The Premier League, which is consulting its member clubs on a review of its Owners and Directors Test, may well be minded to ban leveraged buyouts or deals using the financial sophistry deployed by ALK Capital in its takeover of relegated Burnley.
Decade-long curbs on dividends or share sales may have been a reflection of the particular circumstances surrounding the Chelsea deal rather than offering a wise blueprint for all. Even in the Stamford Bridge club’s case, there remains little clarity about how Clearlake – a private equity firm with outside investors in its funds – was able to get comfortable with such far-reaching guarantees.
Some transparency about that, and reassuring Chelsea fans that it has no intention of backdoor financial engineering, would be a good way to kick off a new era for the Blues – as well as for English football.
New CMA chief no stranger to competition challenges
It’s understandable that approving mega-mergers can be a formidable obstacle for competition watchdogs, but it’s not supposed to take them two years to find their own board members.
At least in Marcus Bokkerink, a former Boston Consulting Group senior partner, the government has found someone steeped in anti-trust issues to chair the Competition and Markets Authority.
Here’s this from a blog he wrote jointly with colleagues in 2017 about consumer goods giants’ struggles against more agile start-ups: “Goliath can defeat David. Consumers’ tastes have changed, but their underlying needs and desires have not… large FMCG companies can prevail over their supposedly nimbler foes. But they need a new playbook.”
Let’s see how this poacher-turned-gamekeeper move plays out.
Mark Kleinman is the award-winning city editor at Sky News, breaking major business stories and analysing what they mean for the financial sector. He writes a fortnightly column for City PM