Case Study

Alliance Boots (A): Too big for his boots? Taking a FTSE 100 company private

13 pages
December 2007
Reference: IMD-1-0257

The marriage between Boots the Chemist, the UK’s leading retail pharmacy chain, and Alliance UniChem, one of Europe’s largest drug wholesalers, was declared a match made in heaven by the two main instigators of the deal; Sir Nigel Rudd, chairman of Boots, and Stefano Pessina, executive deputy chairman of Alliance UniChem. The £7 billion merger was said to be a true merger of equals and would form a springboard to turn the company into a global health and beauty care company. Both Rudd and Pessina put an enormous amount of time and effort into convincing their respective shareholders to accept the deal. The campaign paid off and the merged company floated on 31 July 2006. Less than eight months later, Pessina took centre stage again for another announcement. In what was seen as a shocking turnaround by many City observers, not to mention by the Alliance Boots investors, he made a formal bid, backed by the private equity firm Kohlberg Kravis Roberts (KKR), to take the company private. It was not simply the speed of the turnaround that was an issue. Pessina was executive deputy chairman of Alliance Boots, managing the strategy and integration of the merged company. He was also the largest individual shareholder with a 15% stake in the company. To complicate matters further, many of the executive and non-executive board members had previous connections with Pessina, as did some of the advisors involved in the proposed deal; Goldman Sachs, acting for Alliance Boots, was simultaneously advising KKR on another deal; and Alliance Boots and KKR were using the same financial PR firm. It was impossible for investors to know where to turn to get an objective view of the situation. Sir Nigel Rudd, as chairman of the board, had his work cut out for him.

Learning Objective

Participants should understand 1) that the stewardship of an independent board by the chairman can sometimes be particularly difficult in certain circumstances yet it remains one of his primary responsibilities; 2) that the resolution of multiple conflicts of interest is often not clear cut; 3) that the goal of maximising shareholder value can involve a number of conflicting options and choices; 4) some of the underlying factors driving the private equity sector.

Keywords
Shareholder Value, Private Equity, Takeover Bid, Bidding War, Pharmacy, Pharmaceutical Wholesale
Settings
United Kingdom
2005-2007
Type
Published Sources
Copyright
© 2007
Available Languages
English
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