mukesh ambani: The fight for Boots: What gives Mukesh Ambani the edge

Mukesh Ambani-owned () and US buyout firm Apollo Global Management has emerged as the frontrunner to acquire Walgreens Boots Alliance Inc’s international chemist and drugstores unit, popularly known as Boots, said multiple people aware of the development.

A “firm” and “binding” offer with financing commitments which went in late Wednesday evening followed hectic negotiations involving lawyers for the last one week, the people mentioned above added.

The Walgreens board will now meet and deliberate on this offer and come back within a few weeks – likely before their upcoming quarterly results – on whether they want to accept it and enter into exclusive negotiations with the Reliance-Apollo consortium.

However, the offer is likely to be much lower than the original £7 billion ($8.8 billion) valuation that was sought by Walgreens. Sources aware of the ongoing discussions peg it between £5 billion and £6 billion ($6.3-7.5 billion). The offer also involves Walgreens retaining a “significant” minority stake in the company.

ET in its June 3 edition was the first to report that the RIL-Apollo combine was closing in on Boots and the 50:50 alliance is moving ahead with a firm offer.

Reliance and Apollo are also in discussions with global banks such as HSBC, Standard Chartered Bank, Bank of America, MUFG and Barclays for financing. Both partners are going to split the debt and equity components of the financing equally.

‘Sole Contenders’

Goldman Sachs and the Royal Bank of Canada are advisers to the deal. Law firm Kirkland & Ellis LLP are the legal advisers to

and Apollo.

“There has been a lot of negotiations over the fine print that is ongoing among the lawyers over several issues like lease agreements, pension liabilities,” said an official in the know who spoke on condition of anonymity as the talks are in the private domain. “As of now, Reliance and Apollo are the sole contenders in fray which is also the reason why the negotiations are taking more time.”

Reliance, Apollo declined to comment. An email sent to Walgreens did not elicit any response till the time of going to press.

However, deliberations are ongoing, and there’s still no certainty they will lead to a transaction.

Financing Blues

The fact that the RIL-Apollo bid is backed by financing is significant as deal financing in the pound sterling market has become a challenge as UK banks have become wary of bankrolling buyouts in sectors like retail. Russia’s war in Ukraine, soaring inflation, coupled with monetary tightening by the Federal Reserve and the Bank of England have stoked 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.

Tight financial conditions are believed to be a key factor behind the decision of the competing consortium backed by billionaire Issa brothers, Mohsin and Zuber Issa, who run 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 other 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 Morrisons’ £7-billion ($8.6 billion) takeover by US buyout fund CD&R is the most notable deal that got hit as the syndication of its debt has been delayed by about six months. Lead banks – Goldman Sachs,

, 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 debt worth about 1 billion pounds at a discount of around 10% to be able to sell it to private lenders, the bankers added.

“In such a backdrop, even though Reliance and Apollo are very serious, they are taking extra time,” added one of the officials mentioned above. “The deal is predicated on the growth potential of the franchise in Asia and also in UK where the business needs significant investments. The competition from other retailers have been fierce but both Reliance and Apollo have the deep pockets to pull it through.”

Boots has 2,000+ stores in the UK, and gets about 45% of its roughly £6 billion in annual revenues from providing services such as prescriptions and vaccinations to NHS.