boots: Walgreens drops sale of Boots pharmacy chain

Walgreens Boots Alliance, Inc.on Tuesday announced its decision to keep its Boots Pharmacy chain and No7 Beauty Company businesses under its existing ownership, following “unexpected and dramatic change” in the global financial markets since launching the sales process in January as part of a strategic review of operations.

Earlier this month, Reliance Industries Limited together with private equity group Apollo Global Management Inc made a firm and fully financed offer to buy Boots – Britain’s biggest pharmacy chain – for $6.3 billion, much lower than original 7 billion pounds ($8.8 billion) price tag that was sought by Walgreens. The Reliance-Apollo offer also involved Wallgreens retaining a “significant” minority stake in the company.

If successful, this would have been the largest cross border acquisition for Mukesh Ambani led RIL.

“Since launching the process, the global financial markets have suffered unexpected and dramatic change. As a result of market instability severely impacting financing availability, no third party has been able to make an offer that adequately reflects the high potential value of Boots and No7 Beauty Company. Consequently, WBA has decided that it is in the best interests of shareholders to keep focusing on the further growth and profitability of the two businesses,” the company said in a statement. “The decision to retain the businesses has also been supported by the ongoing strong performance and growth of Boots and No7 Beauty Company, which have exceeded expectations despite challenging conditions,” it further added.

The company plans to invest in the business to unlock its “unparalleled potential.” Boots has more than 2,000 stores in the UK, many of which require investment, and gets about 45% of its roughly £6 billion in annual revenues from providing services such as prescriptions and vaccinations to NHS. Another area of complexity: Its large defined-benefit pension scheme, which is in surplus but not by itself enough to allow a buyout by an insurer. Reliance and Apollo are looking at taking the Boots franchise to growth markets of Asia like India, Middle East and South East Asia.

The RIL-Apollo bid backed by financing was seen as significant as deal financing in the pound sterling market has become a challenge as UK banks have become wary of bank rolling buyouts in sectors like retail sector. Russia’s war in Ukraine, soaring inflation, coupled with monetary tightening from the Federal Reserve and the Bank of England hiking rates stoked up a rise in borrowing costs across markets. In UK for example, the combination of factors drove up the average yield on junk corporate debt by more than 230 basis points since the start of last August, and also led to Europe’s longest drought in high-yield bond sales in over a decade.

This is believed to be a key factor behind the decision of the competing consortium backed by billionaire Issa brothers Mohsin and Zuber Issa, who run a supermarket group Asda, and TDR Capital to first baulk at a request by Walgreens to increase their offer for the Boots drugstore chain, one of Britain’s best known retailers, and eventually pull out of the race. They are yet to re-enter the race, said people involved directly. At least two prominent potential bidders, private equity groups Bain Capital and CVC Capital Partners, dropped out of the process. Sycamore Partners had also expressed interest in Boots earlier in the race, people with knowledge of the matter have said.

In Britain, supermarket chain Morissons’ 7-billion-pound ($8.6 billion) takeover by U.S. buyout fund CD&R is the most notable deal that got hit as the syndication of its debt pile has been delayed by about six months. Lead banks — Goldman Sachs, BNP Paribas, Bank of America, Mizuho – that had fully shouldered the Morrisons financing have been left with more than 3 billion pounds of debt yet to be syndicated, according to bankers in London. They had to place a chunk of its debt worth about 1 billion pounds at a discount of around 10% to be able to sell it to private lenders, the bankers added. Even Reckitt Benckiser Group Plc has been struggling to attract bidders for its $7 billion infant nutrition unit.

Goldman Sachs and the Royal Bank of Canada are advisors in the deal. Law firm Kirkland & Ellis LLP are the legal advisors to Reliance and Apollo.

“We have now completed a thorough review of Boots and No7 Beauty Company, with the outcome reflecting rapidly evolving and challenging financial market conditions beyond our control,” said Walgreens Chief Executive Officer, Rosalind Brewer. “The Board and I remain confident that Boots and No7 Beauty Company hold strong fundamental value, and longer term, we will stay open to all opportunities to maximize shareholder value for these businesses and across our company.”