The friendly bid for Alliance Boots could hardly be friendlier. It is led by the company’s deputy chairman Stefano Pessina, in conjunction with private equity giant KKR. Friendly as in Cuckoo in the nest? (Updated).
The Economist (March 17th 2007) examined the likely acquisition of Boots (as it described Alliance Boots). It noted the on-going debate on the merits of private-equity firms, pointing out that Boots was benefitting from effective management, and that the case for change was unconvincing.
It took its characteristic free-market stance to interpret the situation, accepting the story that Mr Pessina had been prompted to act by the sluggishness of performance post-merger. In short, Mr Pessina was not so much a cuckoo in the nest, as a rational agent responding to an entrepreneurial opportunity produced by sub-optimal performance. It added primly, that Mr Pessina might have been partly responsible in that he had failed in part of his well paid job to explain to the market its under-estimating of the value of the company …
My Earlier Post:
The leap in share price tells it all. This week the Alliance Boots pharmaceutical and health-care company was talking to itself. Part of the board considered a ‘friendly bid’ put together by the famed private equity company KKR. Another part of the board, led by its own deputy chairman Stephano Pessina, was spear heading the bid. The rest of the board faction has politely responded ‘thanks very much old friend, but do you think you could possibly find some more cash?’. The shares galloped up close to the proposed £10 level.
What’s going on?
Ambitious company insiders are increasingly aware of the potential of private equity support to mount a bid for ownership. The benefits of such a bid are obvious. The inside knowledge makes due diligence a rapid and relatively risk free process.
In this case, the historical events might almost have suggested that such a takeover was on the cards. It has been less than a year since Alliance Boots was created from the merger of health and beauty retailer Boots, and drugs wholesaler Alliance Unichem. After the merger, the new company retained a board strongly representing the somewhat larger Boots organisation, but with a curious-looking side-arm for deputy chairman Stephano Pessina.
Although difficult to extract the information from the company’s official web-site, Stephano is a highly successful Milanese entrepreneur who in effect is the owner of Alliance Unichem, and thus, a thirty percent personal stake in Alliance Boots. He was the force behind the conversion of his family firm to an international organisation. A nuclear engineer by profession, he is believed to be disappointed at post-merger progress in the newly merged firm.
Cuckoo in the nest
The debate about private equity companies continues. Influential journalist and blogmeister Robert Peston of the BBC has been to the fore in bringing the debate to a wider audience. In simple terms, KKR is but one of a growing and influential group of financial consortia who have been developing innovative means of acquiring companies and capitalizing on their assets. (It is already in the news in the UK for part of a Consortium interested in the Sainsbury retailing organisation). Opponents of such firms portray them as asset strippers, impervious to human anguish and long-term social goals. Supporters argue that they rescue firms from flabby and ineffective management and return them to economic health. Examples of both kinds may be found. What is clear is that the ambitious entrepreneur within an organisation has a new way of seeking to achieve personal ambitions.