KKR recoups £1.2bn equity investment in Alliance Boots


KKR has almost recouped its initial equity investment in European health and beauty giant Alliance Boots though the sale of a 45 per cent stake to Walgreens, in a deal that will cement the US rival’s position as the world’s largest pharmacy chain.

The transaction is part of a strategic partnership that will create the world’s largest pharmacy-led health and wellbeing enterprise, with more than 11,000 stores in 12 countries.

Walgreens also has the option of buying the remaining 55 per cent stake in Alliance Boots in three years’ time, a potential move that would mark the end of KKR’s five year ownership following its £11.1bn debt-fuelled management buyout in 2007.

The deal at the time ranked as Europe’s largest ever leveraged buyout and the first ever private equity takeover of a FTSE 100 company. KKR beat an offer from a consortium comprising buyout rival Terra Firma, UK charity Wellcome Trust and banking group HBOS.

As part of the deal, Nasdaq-listed Walgreens will pay around $6.7bn in cash and stock, comprising $4bn in cash and 83.4 million shares in return for the equity stake.

KKR, which initially invested £1.22bn in Alliance Boots through its KKR 2006 Fund, European Fund II and from its own balance sheet, will receive £1.2bn in cash and seven million Walgreens common shares.

At the current Walgreens share price and at the current exchange rate, the second step of the transaction – the acquisition of the remaining stake – would be valued at around $9.5bn in cash and stock, plus the assumption of Alliance Boots then-outstanding debt.

Although the stake was sold at a lower earnings multiple than the consortium paid for the business, the second stage of the deal could potentially value the company at around £17bn. This would yield a return of around 2.7 times on KKR’s chunk of the £3.9bn of equity that went into Alliance Boots in 2007.

Since KKR’s initial investment, Alliance Boots has built a presence in more than 25 countries and employed over 116,000 people.

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