Boots to get green light on £7bn Alliance deal
The City threw up its hands in horror, but now thinks the chemistry is right for a merger
Sunday 02 July 2006
The extraordinary general meeting will be held on Tuesday and should approval be gained, as expected, the deal is set to complete by the end of this month. Although some shareholders are still likely to vote against it, insiders are confident the merger will receive majority backing.
When first announced late last year, the merger faced stiff opposition across the City. Critics were unconvinced about the combined company's business model and were unsure about how the management structure would work.
Boots chief executive Richard Baker will be chief executive of the new company, to be called Alliance Boots, while Alliance UniChem founder Stefano Pessina will be executive chairman.
But fears of a power struggle grew, particularly as Mr Pessina's role will include planning strategy and further potential acquisitions, traditionally the domain of a chief executive.
But one insider dismissed the concerns, saying: "These points are going to keep getting made. But in a year's time, let's have a debate about who was right."
Advisers to both sides have also spent several months convincing the City about the benefits of the deal. "This is unlike most mergers, which tend to happen in the same sector," said one. "Although there was some overlap, such as pharmacy, people would not have seen the link because Alliance is covered by healthcare analysts and Boots is in the retail sector."
Nottingham-based Boots, which was founded in 1860, has one of the biggest retail portfolios in the UK, with around 1,400 branches from small high-street stores to big, out-of-town "destination" shops. It has own brands such as No 7 and Soltan. Alliance UniChem owns a string of pharmacies in the UK but is also a major player in European drug wholesale distribution.
Synergies are predicted to be around £100m. The City had been unhappy about the low level of cost savings, but many have since revised their opinions. Investec, for example, is now predicting synergies of closer to £200m.
Although such a high figure was played down by insiders, one commented: "People didn't believe the synergies. But they will be significant in our judgement. They will be met and, I suspect, exceeded."
The plan now is to focus on expanding the Boots brand overseas, while in the UK, the shift will continue to be towards pharmacies. Mr Baker believes this is where the company can add value, unlike in more general toiletries, where Boots has been fighting a losing battle against the supermarkets for years.
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