Walgreens Boots Alliance and the Rise and Rise of Stefano Pessina

January 21, 2015

As 2014 drew to a close, the second stage of a merger took place incorporating the American convenience stores group Walgreens with what was originally known as Boots the chemist of England. Boots had already morphed into Boots Alliance at the time of the merger

In the new year [January 15th, 2015] the new company announced its first dividends. The histories of the brands can be found in the excellent website of the new company. It positions itself as a first global-pharmacy led health and well-being company. This strap line may not be pretty but it has a rather ponderous truth reflected in the brands of Walgreen stores of America and the revamped Boots stores in the UK. The stores also hint at shared values and reasonably compatible cultures which could go some way to avoiding the pain that accompanies any merger.

WBA is not a football club

Walgreens Boots Alliance, has the new Nasdaq label WBA. [not to be confused with WBA, aka The Baggies, or West Bromwich Albion, another venerable brand in England, and a midlands- based Football club.] The merger was suggested to have been imposed on Walgreens by impatient shareholder activists.

Winners and Losers

The change had more executive bloodshed on the Walgreen side. Unsurprisingly, the veteran Stefano Pessina of Boots Alliance became the most obvious winner, just as he was when he engineered the Merger of Boots with his own Swiss-based operations earlier . The financing of the deal cost Walgreens five billion dollars plus shares. LWD subscribers will have followed the commercial rise and rise of Stefano Pessina in earlier posts in which I noted:

In the original merger between Boots and Alliance, the new board had a majority of former Boots executives. But the Alliance side was the more profitable, and Stephano brought with him a sizable shareholding and considerable personal wealth. Pessina had enough power to be magnanimous. Mr Baker [a departing Boots executive] may not have had much temptation to stay on when the alternative was a £10 million incentive to leave, with more chances of securing a new leadership role elsewhere.

Leadership lessons

I’m not sure of the leadership lessons here. Perhaps it is that self-made billionaires are not all ego-crazed narcissists. Maybe absolute power is not always accompanied by absolute ruthlessness.

Image

The image was one taken as I was visiting a Walgreens in Buffalo, NY last year. It’s not much to do with the merger, unless you read something into the caption …


Alliance Boots shows some transparency

June 10, 2008


Alliance Boots show a strong profit rise, after the friendly takeover of Boots by Steffano Pessina. The news also indicates a calculated tranparency rare for traditional Private Equity ventures

The story of the profit rise at Alliance Boots was found in The Times on line and picked up by the agencies. According to The Times, Alliance Boots

will this week [June 9 – 13, 2008] buck the gloom on the high street when the pharmacy chain reports a 20% increase in trading profits during its first year as a private company.

Stefano Pessina, the executive chairman who teamed up with Kohlberg Kravis Roberts to mount the £12.4 billion buyout, will announce on Tuesday a £770m profit for the 12 months to March.

The performance gives Pessina the opportunity to face down critics who said he overpaid for Alliance Boots, which has 1,500 UK shops and distributes medicines across Europe. Banks that financed the deal – Europe’s largest leveraged buyout at the time – were forced to discount its £9 billion of debt in order to sell it on.

Higher profits were achieved by driving costs from the business, which was created a year earlier from the merger of Alliance Unichem with Boots. Sales at its largest stores are proving the most resilient. However, questions remain over whether it can maintain such momentum in a stuttering economy.

The story so far

In an earlier post Leaders We Deserve reported

Cherished British Drug company Boots merges with European partner, whose wealthy owner, Stefano Pessina, becomes deputy chairman in the new company, Alliance Boots.

The amicable arrangement suggested that in any leadership transition, Mr Pessina would be a cuckoo in the nest. In short order, chairman Sir Nigel Rudd resigned. further friendly discussions were followed by a takeover by private equity firm KKR. The move was presented openly as a vehicle which would install Pessina as its main driver

KKR and Stefano Pessina had made it known that they wanted to keep the top team intact. But for all the continuing expressins of good will, the inevitable was to happen.

Thursday July 12th 2007, Richard Baker decised to accept a severance deal that would be worth some £10 million. It seems as if they made an offer for him to stay, or decline with honor. In an interview with he says

“Stephano is a gentleman. He has been as good as his word with me every step of the way..I am confident about the future of the company ..I have looked everyone in the eye at Nottingham [corporate HQ] and told them that”

.

Another top retail executive, Scott Wheway, is also leaving, again in an amicable fashion.

Not too difficult to predict

The story has been followed in earlier posts. It struck me that in the original merger between Boots an Alliance, the new board had a majority of former Boots executives. But the Alliance side was the more profitable, and Stephano brought with him a sizable shareholding and considerable personal wealth.

It was not difficult to predict what would happen. I noted earlier this year that

If takeover is successful, I am not expecting many of actual board members to retain their positions.

And so it has come to pass. Not brutally. But Pessina has enough power to be magnanimous. Mr Baker may not have had much temptation to stay on when the alternative was a £10 million incentive to leave, with more chances of securing a new leadership role elsewhere.

Leadership lessons

I’m not sure of the leadership lessons here. Perhaps it is that self-made billionaires are not all ego-crazed narcissists. Maybe absolute power is not always accompanied by absolute ruthlessness.

The initial deal was done a few months before financial markets went into melt-down. Alliance Boots seems to be supporting the enthusiasts of free market capitalism in the robust form of Private Equity interventions.