India’s Reliance Industries is reported to have teamed up with the US private equity fund Apollo Global Management to make a bid worth around £5.5bn for Boots.
Sources stated that the deal would allow its US parent Walgreens Boots Alliance (WBA) to keep a minority stake, the size of which is open to negotiation but thought to be between 30% and 40%.
The offer follows months of uncertainty about the sale of the health & beauty retailer after market turmoil sparked by the war in Ukraine made financing a leveraged buyout more difficult. The bid deadline has already been extended, and two prominent potential bidders, private equity groups Bain Capital and CVC Capital Partners, dropped out of the process in the early stages amid concerns around the valuation of the business.
The owners of Asda, the Issa brothers and TDR Capital, are believed to have made an initial non-binding bid, although it is not clear whether they will now make a formal offer. The Issas’ interest is thought to have cooled in recent weeks as Asda battles a tough grocery market, and they are believed to have threatened to walk away from the process last month because of a disagreement over the price.
Analysts noted that raising the necessary financing for the Boots deal shouldn’t be an issue for Reliance, which is controlled by Mukesh Ambani, the world’s seventh wealthiest man (Forbes).
The interest in Boots by the Indian oil-to-telecoms conglomerate was first revealed back in April. Reports have suggested that Reliance would seek to expand the Boots brand into India, south-east Asia and the Middle East.
Reliance has made several overseas acquisitions, including British toy store Hamleys. Ambani is currently trying to shift its focus toward businesses that will help it tap India’s billion-plus consumers, with the group already operating more than 12,000 retail stores in the country. However, Reliance has yet to build a significant presence in the pharmacy and wellness sector – something that could be achieved through a tie-up with Boots.
Meanwhile, Apollo has long been interested in the UK retail market, having been rumoured to be interested in Marks & Spencer and Morrisons. It lost out on Asda to the Issa brothers in 2020.
Analysts have suggested that the successful bidder will need to invest significantly in Boots retail operations in the UK. It has more than 2,000 stores, many of which require updating or are located on struggling high streets. In recent years, the business has been losing market share in some areas to online rivals, supermarkets, and variety discounters such as B&M and Home Bargains which have been undercutting it on personal care and beauty staples.
Reports said the WBA has yet to accept any offer for Boots but is keen on making an announcement on the outcome of its auction before its results at the end of the month. It is selling the business to focus on the lucrative US healthcare market.
NAM Implications:
- Reliance, controlled by Mukesh Ambani, the world’s seventh wealthiest man…
- …so price should not be a problem?
- Key to keep in mind that wealth and caution re price paid, go hand-in-hand…
- This all boils down to the gap between WBA £7bn asking price and outside consensus (£4bn)…
- …coupled with the extent to which WBA wants out.
- Some classic negotiation moves on the way…
- Meanwhile, some ‘what-ifs’ on a Reliance go-ahead, including Boots potential in India, south-east Asia and the Middle East…
- …might clarify the relative weights of the elements in play.
