U.S. News

KKR Trumps Boots Bidding War; Terra Firma Withdraws

A bidding war for Alliance Boots ended Tuesday with the company's deputy chairman and a private equity firm emerging the winner after a sweetened 11 billion pound ($22 billion) offer pushed a rival private equity group out of the running.

Alliance Boots said it would recommend the 1,139 pence ($22.80) per share offer from deputy chairman Stefano Pessina and Kohlberg Kravis Roberts & Co. to shareholders, leading a consortium led by financier Guy Hands to withdraw its interest.

Pessina and KKR were forced to raise their offer three times to secure their bid for the pharmaceutical company, which has around 3,000 Boots drugstores in Britain, seven other European countries and Thailand.

Around 2,600 of the stores are in Britain, and its status as a household name has prompted debate on the merits of ownership by private equity of major British companies.

The revised KKR-Pessina offer and the board's recommendation followed KKR and Pessina's acquisition of two large blocks of Alliance Boots shares, taking its stake in the company to around 21%, including 6% held by the consortium's takeover vehicle AB Acquisitions.

The new bid topped the 1,126 pence ($22.54) per share, or 10.8 billion pounds ($21.6 billion), put forward Friday by Hands' private equity firm, Terra Firma Capital Partners, together with medical research charity Wellcome Trust and HBOS.

National Institution

The Terra consortium said it regarded Boots as a "critically important national institution, and is now naturally disappointed not to be able to execute the bold vision it had for the company and its critical role in the provision of healthcare in the U.K."

However, it noted that its bidding helped push Boots' share price higher in recent days. The stock was at 1,122 pence ($22.43), up 0.4%, on the London Stock Exchange.

Alliance Boots was formed last year in a combination of drug distributor Alliance Unichem and retail chain Boots Group.

On the distribution side, the company supplies more than 125,000 pharmacies, health centers and hospitals.

Friday's private equity bidding war follows the collapse of a bid for J Sainsbury, the country's third-largest grocer, last week.

KKR was involved in the consortium that made an approach for Sainsbury, but pulled out of the bid before its collapse to focus on the Alliance Boots offer with Pessina, who caused an initial stir with his involvement.

Pessina, the executive deputy chairman of Alliance Unichem before the merger, was barred from emergency board meetings regarding the offer. He reportedly made his approach after becoming frustrated with the failure of investors and analysts to fully appreciate the value of the enlarged business.