CASE STUDY


Alliance Boots was the fi rst FTSE 100 company to be taken private in a PE transaction, which valued it at over £11 billion. This distinction aside, the transaction had some unusual features. Alliance Boots had been created less than a year earlier, by the £7.8 billion merger of Alliance Unichem and Boots, two chains of drugs companies and retail pharmacies. In March 2007 Stephano Pessina, the executive deputy chairman of the company, informed its chairman, Sir Nigel Rudd, that he was working with KKR on a deal to take the company private, and the initial offer would be in the region of £10 per share. Pessina, the billionaire entrepreneur who had built up Alliance Unichem and engineered the merger, was the largest shareholder, owning about 15%. As executive deputy chairman he was responsible for corporate strategy. Furthermore, he wanted to retain the company’s existing management team. In addition, many of the board had come from Alliance Unichem, and so had previously worked for and with Pessina. Many owned shares, and could benefi t from any takeover. With all of this, the potential for conflicts of interest was significant. Once the deal was notifi ed, Rudd, as chairman, had to act in the best interests of the other shareholders of the company. The independent nonexecutives had to decide whether to open the books to the bidders at the price of £10 (they did not); they also had to fi nd advisors who were independent of any of the bidders. And the bidders had to be kept at a distance, to avoid influencing the company’s attitude to the transaction. Given Pessina’s key role in the company, this was trickier than usual: the NEDs had to evaluate the value of any potential deal, and all of the management team who might have helped with this evaluation were effectively ruled out. The deal turned into an auction, as another PE firm, Terra Firma, also decided to bid. This drove up the price – the company opened its books to an offer of £10.40 per share and the final deal was for £11.39. Value was created for shareholders in this deal. However, such situations often end less satisfactorily. Once senior management with a large stake have expressed an interest in taking a company private, the company’s future becomes uncertain and an offer can often be difficult to resist.

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