Shareholders: KKR, Stefano Pessina, (Walgreens)

Boots stores remain a reassuring sight on Britain’s ravaged high streets. In spite of the recession, sales and profits at Alliance Boots have increased every year since the group was formed in 2006 with the merger of Nottingham-based Boots and the pharmaceuticals wholesaler Alliance Unichem.

The group faces further changes over the next three years after agreeing last week to merge with the American company Walgreens to create the world’s largest pharmacy business.

Alliance Boots’ executive chairman Stefano Pessina and the American private equity firm KKR have agreed to sell 45% of their holdings to Walgreens and have given the American giant the option to acquire the other 55% in three years. The first part of the deal should be completed by September 1 if it gets regulatory clearance. Pessina said the move would make the Boots brand “more visible, more international”.

Sales in 2012 rose to £25.4 billion, including £2.4 billion from joint ventures and associates, making Alliance Boots comfortably Britain’s biggest private company even though it currently has its headquarters in Switzerland.

Demand for its health and beauty brands, such as the No7 and Botanics ranges, means that own-label products now contribute a third of overall sales.

Pessina started in the industry in 1977 when he founded an Italian pharmaceuticals wholesaler and retailer. Through a number of mergers and acquisitions of other European firms, he created Alliance Unichem, the company that ultimately merged with Boots in 2006. A year later, Pessina led a record-breaking £11 billion deal that took Alliance Boots off the stock market, with funding provided by KKR and a consortium of banks.

The delisting was the last huge European deal before the credit crunch hit in the summer of 2007 and the company still carries £7 billion of long-term debt from the buyout. Walgreens will take on these debts if it exercises its option to buy out Pessina and KKR.

For now, low interest rates have helped to lessen the burden, and the company has remained profitable even after interest payments.

Pessina has been clear that his plan is to make the Boots brand global. It now has 3,330 shops and 375 pharmaceutical distribution centres in 25 countries, primarily in Europe, and has increased its presence farther afield. The company holds a stake in a pharmaceuticals wholesaler in Turkey, exports to Russia, and has a joint venture in China with a local importer and distributor.

Its £50m new automated warehouse in Burton upon Trent has been built to fulfil online orders. The group sees the internet as an area of strong growth.

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Copyright © 2012.
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