Reliance Industries Ltd. (RIL) is on an epicurean shopping spree overseas with a binding bid for Walgreens Boots Alliance’s UK retail pharmacy business being the latest one in its armour.
The consortium of Mukesh Ambani-led conglomerate and US-based private equity firm Apollo Global Management Inc. has emerged as the frontrunner to the popular chemist chain – Boots.
The purchase, if it materialises, would be a pivotal one for Reliance and will swell its already hulking bag of overseas acquisitions. If the consortium manages to close the deal, it has a fair shot to make a decent return on the UK high-street stalwart.
The Walgreens board will now meet to consider the offer and pick a winning bidder within a few weeks- probably before the company’s upcoming quarterly results. Although, the odds are stacked in Ambani’s favour, would it be that easy for him to clinch the deal? Lets’ take a look at the financial and other aspects of the Boots’ acquisition.
Financials in place
The offer the consortium has made is pegged between 5 billion pounds and 6 billion pounds ($6.3-7.5 billion), Bloomberg reported. However, it is likely to be significantly lower than the original 7 billion pounds ($8.8 billion) valuation sought by Walgreens.
The offer also comprises Walgreens retaining a minority stake in the company. At this level, the buyers are unlikely to overpay as the valuation also takes into account the complete overhaul Boots will need.
This is because the business has struggled due to the customer shift to online shopping, and the rival Superdrug entering the beauty and services segment.
Nonetheless, the new owners would have myriad opportunities to turn the pharmacy chain around by improving its online proposition and push the business further into the beauty market, cashing in on the exit of British department store Debenhams from the UK’s high-street.
Strong financing
The Boots offer is said to be backed by committed financing as Reliance and Apollo are holding talks with global banks such as Barclays, Bank of America, HSBC, MUFG, and Standard Chartered Bank for financing the purchase.
Both Reliance and Apollo are going to cleave the debt and equity constituents of the financing evenly. The fact that the consortium’s bid is backed by financing is noteworthy as deal financing in the UK market has become a challenge since British banks are not very keen on financing acquisitions in sectors like retail.
This is because the surging inflation, Russia-Ukraine war, along with monetary tightening by the Bank of England and Federal Reserve have fuelled a rise in borrowing costs across markets.
Counteroffer from rivals
The consortium may have to brace for a counter offer from private equity rival TDR and billionaire brothers Mohsin and Zuber Issa. Although Bloomberg had reported in late May that TDR and Issa brothers have been mulling withdrawing from the race due to discords over price. It is not yet clear if they have pulled out of the race but are widely believed to have done so.
However, even if the Apollo-Reliance consortium gets ahead in deal talks, they will still have to negotiate with Walgreens Chairman and Italian billionaire Stefano Pessina who is a sharp and thorough dealmaker.
Growth potential in India?
Expanding Boots in India has promising growth potential for Ambani as the business lacks scale in Asia. The need to improve healthcare services in India, especially after the COVID-19 pandemic, could prove to be a lucrative business opportunity if Boots can manage to seize this opportunity.
Although the consortium will need to invest heavily in the business, favourably, Reliance can tap its know-how in emerging markets and deep pockets to exact further growth out of the British high street.
If the Apollo-Reliance consortium manages to revive Boots, they could command a better valuation if they bring the company back to the market.
