Mukesh Ambani and Britain’s billionaire brothers face off for a drugstore chain

Britain’s billionaire Issa brothers and Indian tycoon Mukesh Ambani are preparing to face off in the final battle for the Boots drugstore chain, one of the UK high street’s most recognizable names.

The Issas are seen as the party to beat ahead of next week’s deadline for proposals, after they submitted the highest offer in the first round, people with knowledge of the matter said. The duo are going up against Ambani, who’s been working on a bid together with buyout firm Apollo Global Management Inc.

Bidders are now sizing up Boots’ billions in pension guarantees — which they’ll have to take on — as they figure out how much they can pay for the business, the people said. They’re also working around the clock to arrange financing in a difficult market, which has gotten that much tougher due to the war in Ukraine, soaring inflation and rising interest rates, according to the people.

That’s a lot to sort through, and suitors are getting a few extra days to firm their bids up after the chain’s owner Walgreens Boots Alliance Inc. pushed back the May 16 deadline to later in the week, the people said.

A deal would fit in well with the Issas’ empire-building ambitions. In recent years, they’ve gone on an acquisition spree that’s turned their main company EG Group into a global gas station and convenience store colossus. They’ve snapped up UK supermarket operator Asda Group Ltd. and the Leon chain of fast casual restaurants.

The brothers, who are pursuing Boots together with TDR Capital, seem to have found a neat solution to the financing issue: they’re considering piling more debt onto Asda and selling some of the supermarket chain’s assets to help fund the acquisition, people with knowledge of the matter said this month.

The emergence of Ambani, first revealed by Bloomberg News in April, promises to keep the race competitive. Apollo is known to be wary of overpaying on deals, which has led it to lose auctions for British companies like Asda and packaging firm RPC Group Plc. Teaming up with India’s second-richest person could give it more firepower: Ambani is an experienced operator who’s keen to expand the retail arm of his conglomerate

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One outstanding question is how close Walgreens will be able to get to its asking price of 7 billion pounds ($8.5 billion). Bidders had pegged its worth around 5 billion pounds, though it’s possible they will boost their proposals following due diligence, the people said. The international drugstore unit being sold by Walgreens — which has the Boots chain in the UK at its core — also includes a smattering of retail operations elsewhere, plus attractive private-label brands like No7 Beauty Co.

Retail-focused private equity firm Sycamore Partners has also been touted as one of the suitors still remaining. Representatives for Walgreens and the bidders declined to comment.

The Boots sale has emerged a litmus test for dealmaking in the UK as credit markets become increasingly fragile. The easy financing conditions that supported a series of debt-fueled takeovers of British companies last year have mostly come to an end. Indeed, banks that funded the private-equity buyout of Wm Morrison Supermarkets Plc had to sell some of the debt at a steep discount and are now facing losses, Bloomberg News has reported.

British Retail Sales Bounce Masks a More Somber Outlook

A pedestrian wearing a protective face mask passes a Boots pharmacists, operated by Walgreens Boots Alliance Inc., on Oxford Street in London.

Whoever comes out on top, the hard work will just be getting started. Boots has a sprawling network of more than 2,200 stores across the UK, many of which need sprucing up. The high street has been hit by slowing demand in recent years, and they’ll need to refocus Boots’ business to adapt to these changing consumer habits.

There’s also the cost of living crisis to contend with. UK retailers have warned of “clouds on the horizon” after recording a sharp slowdown in sales as higher prices cut into spending power.