Wellcome Trust plans bid for Boots

The Wellcome Trust, the world's second largest charity, is preparing a counterbid for Alliance Boots in partnership with the financier Guy Hands.

Such a move, which could come as early as this week, could scupper the £10.1bn takeover plans of the Alliance Boots deputy chairman, Stefano Pessina, and the private equity house Kohlberg Kravis Roberts.

Terra Firma, Mr Hands' investment vehicle, and the Wellcome Trust are understood to have approached Sir Nigel Rudd, the chairman of the wholesaler and high-street retail chain last week to ask to view the company's books. The Alliance Boots board is thought to be considering the demand if the consortium can show it has the financial backing needed to better KKR's offer.

Wellcome Trust is the UK's largest private equity investor with around £6bn in venture capital and hedge fund assets and an endowment of £13bn. The healthcare charity has become a vocal supporter of private equity in recent months and has defended it against the charges put forward by the unions and MPs that it is only interested in short-term gains and cost-cutting.

The City had been expecting Mr Pessina and KKR to succeed in their bid to buy Boots after the board agreed to allow the consortium a period of due diligence after it raised its proposal to 1,040p a share last month. Mr Pessina's first 1,000p-a-share approach, which valued the company at £9.7bn, was rejected on the grounds that the offer failed "to reflect its fundamental value".

However, the German pharmaceutical group Celesio emerged as a potential suitor last week. Celesio, which already owns the Lloyds pharmacy group in the UK, is looking for a private equity partner to back a bid. A tie-up between the two healthcare giants would be viewed as attractive from a private equity point of view, due to the potential cost-savings.

One industry source said that Wellcome's interest in a big plc marked "a major change of strategy for the group" and said it would be difficult "to see how it could make the numbers work" to top the KKR offer.

Terra Firma has had difficulty in finding a bank to finance a bid as many of the major banks are already involved. However, it is now understood to have several interested parties.

Terra Firma is seen as a more serious threat to Mr Pessina's ambitions than Celesio. However, its approach is at a preliminary stage and an offer could be made only after a period of due diligence which would take several weeks. KKR and Mr Pessina's bid is already well underway and has financial backing from a syndicate led by Unicredit.

Mr Pessina, who has previously been distrustful of private equity, was approached by KKR in February with a view to taking private the company he formed last summer through the £7bn merger of the drugs wholesaler Alliance Unichem and Boots, the 150-year-old high-street chemist. The Italian billionaire, who is a 15 per cent stakeholder in the company, is unlikely to vote for any rival deal.

Alliance, which operates 3,000 retail outlets and more than 360 drug distribution depots across Europe, is at the centre of an Office of Fair Trading inquiry into how medicines are distributed in the UK. This was triggered by Pfizer's decision to channel all its drugs through Alliance Boots' wholesale arm.

Last month, the Wellcome Trust joined forces with other investors in private equity, including SVG Capital and Hermes, to defend the industry. In February, Wellcome's chief executive Danny Truell publicly stated that changes to the taxation of private equity funds could have disadvantageous consequences for the UK as a whole.

A giant medical charity

The Wellcome Trust is second in size only to the Bill and Melinda Gates Foundation. It invests more than £400m a year in biomedical research to improve human and animal health. Its projects range from stem cell research to eating disorders and it also supports the public understanding of science.

The Trust was set up in 1936 on the death of the American-born pharmaceutical magnate Sir Henry Wellcome. He vested the entire share capital of his company, The Wellcome Foundation, in individual trustees who were charged with spending the income according to his wishes.

In 1986, the trust sold 25 per cent of Wellcome stock to the public and in 1995 sold off the remaining stock to Glaxo to create GlaxoWellcome - which later went on to form the drug giant GlaxoSmithKline. The trust also has an extensive art collection and library.