Following on from rumours last month, a new report has suggested that Walgreens Boots Alliance (WBA) is lining up advisers to explore options for its Boots chain in the UK, including a sale that could value it at as much as £10bn.
According to Sky News, WBA will hire Goldman Sachs to examine the hiving off of the health & beauty chain, potentially via a sale or separate listing.
The report quotes City sources that said the process would be exploratory and might not ultimately lead to WBA disposing of Boots.
With a network of around 2,200 stores, an auction of Boots would be among the most significant deals involving a high street chain for many years. However, it would likely draw close scrutiny from the government given the retailer’s nationwide role in delivering public healthcare services.
One analyst told Sky News that the pharmacy chain’s value could be between £10bn and £12bn. Another market source thought the likely valuation would be closer to half that range.
Private equity funds sitting on huge undeployed pools of capital would inevitably be among the suitors for Boots if it came onto the market. Other reports suggested that Tesco, Sainsbury’s, Asda, Morrisons and Amazon could be interested in some of its stores to get better access to local communities for customer deliveries and shops.
At the start of this year, WBA appointed Roz Brewer as its new Chief Executive, with Stefano Pessina becoming Executive Chair. Brewer has signalled a greater focus on US healthcare and the group has already sold its Alliance Healthcare distribution business to pharmaceuticals wholesaler AmerisourceBergen.
In a statement issued to Sky News, the company said: “Walgreens Boots Alliance (WBA) does not comment on market speculation and Boots is an important part of the Group.
“However, it is accurate that WBA announced a renewed set of priorities and strategic direction for the Group in October, which includes a more pointed focus on North America and on healthcare.
“As underlined during the last WBA investor conference, the group continues to be very pleased with the performance of Boots and the International division as a whole.”
In recent years, Boots has faced tough competition in the health & beauty market from supermarkets, discounters, and online retailers. In response, the business has been closing underperforming stores and revamping its remaining outlets to offer better services and product ranges.
The business suffered a significant decline in sales last year when its high street and travel sites were impacted by the lockdowns, and shoppers turned to supermarkets for their health & beauty needs. However, most recent data suggests Boots is seeing a good recovery in revenues after the easing of Covid-19 restrictions boosted footfall in its stores.
Speaking to The Sunday Times last month, a former executive for the retailer said: “Boots has to work really hard to just keep sales flat. But on the other hand, it’s an absolute cash machine. I would not be in the least bit surprised if Walgreens sold it to a private equity house.”
In the year to 31 August 2020, the effects of the pandemic pushed Boots to an operating loss of £245m on sales down 10.8% to £5.95bn. Its next set of accounts are likely to show similarly weak figures.
NAM Implications:
- NAMs have two options:
- Await a formal announcement re new owners.
- Conduct some what-ifs on possible outcomes and steal a march on rivals.
- Either way, one outcome will be possible prices & terms disparities re a new retail rival.
- (…off or online…)
- In which case, best harmonise now before the new combo do it on your behalf…
- Or in the case of a PE purchase, prepare for a whole new way of dealing with Boots.
- See The Implications of Private Equity Takeover of a Mult
