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KKR, billionaire line up Alliance Boots bid

The private equity firm Kohlberg Kravis Roberts & Co (KKR) said on Friday that it was teaming up with Italian billionaire Stefano Pessina to make a takeover bid for Alliance Boots, Britain's largest drugstore chain.

KKR, based in New York, and Pessina, who is the deputy chairman of Alliance Boots and its largest shareholder, made a friendly approach worth ?10.00 (US$19.11) in cash for each Alliance share, they said in a statement on Friday. The offer is worth about ?9.7 billion (US$18.7 billion).

There is no certainty that the approach will result in a firm offer and the parties said they had yet to have a closer look at the company's books, which could take three weeks.

This week, Bernard Arnault, France's richest man, and the private equity firm Colony Capital of Los Angeles, took a minority stake in Carrefour, the world's second-largest retailer, behind Wal-Mart Stores.

Shares of Alliance Boots rose ?1.15, or 14 percent, to ?9.30 in London on Friday, giving it a market value of about ?7.8 billion. The potential offer values the shares at 23 percent above their closing price on Thursday.

KKR and other private equity firms said this year that they were considering a bid for J Sainsbury, one of Britain's largest supermarket chains, in what could become the biggest private equity acquisition in Europe.

Britain's Takeover Panel gave them until April 13 to say whether they would make a bid.

Retailers are an attractive investment for private equity firms because they usually have a steady income and own real estate against which buyout firms can borrow money to finance the takeover.

Alliance Boots was created last year through the ?7 billion merger of the Boots Group, which sells products like shower gels and prescription medicines, and Alliance Unichem. The combination created a retailer with about 2,600 stores in Britain and 350 outlets in Europe and Asia.

KKR and Pessina, 65, who holds about 15 percent of Alliance Boots, said they wanted to work with Alliance's management to build "a global leader in the health care services and beauty industries."

Since the merger, Alliance Boots has been giving its Alliance outlets the Boots name, added products and refurbished stores to increase earnings.

Profit rose 10 percent, to ?193 million, in the six months that ended Sept. 30, from ?175 million in pro forma net income for the combined group in the same period a year earlier.

Alliance Boots said that it was cautious about consumer spending this year. The company competes with supermarket chains, like Tesco, which have expanded into health care and beauty products.

Pessina was previously an executive deputy chairman of Alliance Unichem. He joined Alliance Unichem's board in 1997, when Unichem merged with Alliance Sante, the pharmaceutical retail company he established in Italy in 1977.

Boots was founded in 1849 by the Boot family, which sold herbal remedies from their small store in Nottingham, a city in the middle of England.

The family business expanded rapidly as the Boots stores bought products in bulk and sold them at reduced prices. In 1900, the family had 181 stores; by the 1930s, more than 1,000 outlets sold drugs, cosmetics and the company's own sun care brands.

KKR has bought about 145 companies with a combined value of about US$274 billion since it was established in 1976. Its other investments in the retail industry include stakes in SunGard Data Systems, the computer software company, and Toys "R" Us.
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