PRIVATE equity firm KKR yesterday confounded its critics by pulling off a deal to sell 45 per cent of pharmaceutical giant Alliance Boots to US firm Walgreens for an initial $6.7bn (£4.3bn).
In three years Walgreens will have the option to complete the takeover and buy the remaining 55 per cent stake. The deal will create the world’s biggest buyer of prescription drugs, with 363,000 employees and combined sales of £71.3bn.
KKR and Stefano Pessina, executive chairman of Alliance Boots, spent £11.1bn – including £3.9bn of equity – to take the European firm private in a debt-fuelled deal in 2007, just months before the credit crunch began.
It remains Europe’s largest-ever leveraged takeover and the first time a FTSE 100 firm has been taken private. At the time critics feared that the purchase of the firm, which runs Boots stores in the UK, would end in tears, but KKR – which rose to prominence in the 1980s during its leveraged buyout of RJR Nabisco, inspiring the Barbarians at the Gate book and film – appears to have proved them wrong. Yesterday’s deal gave a return of 2.7 times its estimated £1.2bn investment. The rest of the 2007 deal was financed through a combination of debt and equity from a consortium of banks.
“Following five years of successful performance, both in the UK and overseas, [Alliance Boots] is now in a better position than ever before,” KKR partner Dominic Murphy said yesterday. “The partnership is about building upon that success and laying the foundation for future growth.”
Shares in the private equity giant closed up 5.3 per cent in New York as markets reacted favourably to a deal that will see UK-based Murphy join the board of Walgreens.
Pessina, who will become a substantial shareholder in Walgreens, said yesterday: “This is something that’s truly game changing. It is about growth, not cost reduction.”
KKR will receive part of the payment in the form of shares and Walgreens will have the option to purchase the rest of the firm in three years’ time, paying an additional $4.9bn in cash and issue 144.3m shares for the remaining 55 per cent stake.
Alex Gourlay, executive director of Alliance Boots, told City A.M. that the deal was good for both sides: “Stefano will become a major shareholder in Walgreens and will join Dominic on the board of Walgreens ... We are making sure we have good collaboration and equal power.
“KKR have been great partners and allowed us to invest £1bn in the UK in the last five years,” he added.