Asda owners eye £10bn Boots pharmacy takeover

Supermarket giant Asda is considering a takeover of high street stalwart Boots after its US owner Walgreens put the pharmacy chain up for sale.

Asda is owned by Blackburn-based brothers Mohsin and Zuber Issa who have stunned the City with an acquisition spree, buying up more than 6,000 petrol station forecourts around the globe as well as the supermarket giant 15 months ago.

The Nottingham-based chemist chain would provide Asda, which mainly operates large supermarkets and hypermarkets, with an extensive network of more than 2,000 pharmacies in cities and towns across Britain. 

Sign of the times: The possible sale of Boots has already attracted a flurry of interest from private equity firms

The possibility of buying Boots – which employs 50,000 staff and is said to be worth as much as £10 billion – is understood to have been discussed at a senior level. 

The discussions are believed to be at an early stage and it is not yet clear whether Asda bosses have made a decision to proceed. 

The possible sale of Boots has already attracted a flurry of interest from private equity firms. There has been talk of a joint bid from two of the world’s largest such companies – Bain Capital and CVC Capital Partners. 

A formal auction of Boots – founded by the Quaker John Boot in 1849 – is likely to begin in the coming weeks when information on the chain has been distributed among parties that have expressed an interest. 

It is possible that Walgreens may yet decide against going ahead with a sale or could choose to spin the chain off as a separately listed company on the stock market. 

Grocery industry sources said other supermarket groups have shown an interest. The Boots chain would offer a wider store network that could be used to provide drop-off points for online businesses in local high streets. 

One senior supermarket source said: ‘It’s in play and everybody will be looking at it.’ 

Another industry veteran said the proposals would almost certainly be passed to the Competition and Markets Authority if a supermarket giant attempted to complete a deal. 

A merger between Sainsbury’s and Asda was blocked three years ago, which could leave retail chains cautious about trying to force through another high-profile takeover. 

‘Like Boots, supermarkets have big health and beauty ranges so the CMA would take a look,’ said one senior supermarket source. 

Boots was snapped up in 2007 by Italian dealmaker Stefano Pessina and private equity giant KKR in a blockbuster deal at the height of that decade’s buyout frenzy. The billionaire now sits on Walgreens’ board and has a 16 per cent stake in the US drugstore group. 

Goldman Sachs has been lined up by Walgreens to sell the Boots chain, which it bought in two stages between 2012 and 2014. 

Estimated valuations circulating around the City vary significantly and range from £5billion to £10billion. 

Boots, among the largest retailers in the country, is run by Sebastian James, who has presided over a period of renewed investment in the business. Walgreens revealed strong trading figures at Boots earlier this month. 

However, critics say that many of its network of stores are long overdue a makeover which is likely to prove to be a headache for any buyer. 

The Issa brothers have already triggered an overhaul of Asda by inviting retailers including bakery chain Greggs and sports shop Decathlon to open outlets inside their supermarkets. The brothers’ own takeaway chain Leon, which they bought last year, also operates inside some Asda stores.

The brothers are planning to open more convenience stores at sites operated by their petrol forecourt business EG Group. They have also promised to invest £1billion to improve the Asda business over a three-year period. 

Morrisons was snapped up by US private equity giant Clayton, Dubilier & Rice in the autumn. The acquisition of Asda and Morrisons has triggered speculation that other megadeals in the retail sector could follow. 

Other large private equity firms expected to consider a buyout of Boots include Apollo Global Management and Majestic Wine’s majority owner Fortress Investment Group. Apollo and Fortress both missed out on the buyout of Morrisons supermarkets last year. 

Apollo also attempted to buy Asda in 2020, while Fortress went on to purchase pub group Punch last month in a deal worth as much as £1billion. 

Asda declined to comment. 

This post first appeared on Dailymail.co.uk