Boots has sold its pension scheme to Legal & General for £4.8billion, clearing the way for a potential sale of the 174-year-old pharmacy chain.
The High Street chemist was put up for sale with a £7billion price tag last year but US owner Walgreens Boots Alliance backtracked a few months later.
It said an ‘unexpected and dramatic change’ in market conditions had caused it to scrap the sales process.
Experts said yesterday that the pension scheme deal, which was one of the largest of its kind, could make it easier for Walgreens to sell.
Private equity giants Apollo, TDR Capital and Sycamore made pitches for Boots when it was on the market early last year.
Walgreens later said no third party was able to make an adequate offer due to the turmoil in global financial markets.
Former Boots corporate finance boss John Ralfe said selling the retirement pot had removed a ‘stumbling block’ to a sale. But he warned that ‘it doesn’t make the underlying fundamentals more attractive’.
Russ Mould, investment director at broker AJ Bell, said Walgreens could ‘revive’ a sale as ‘you could argue that the picture is a bit different now’. He said inflation is cooling, interest rates may be peaking, and the stock and bond markets ‘are rallying amid wider optimism’.
‘From the point of view of any buyer, the fewer liabilities that come with an asset, the more attractive it might be. When a firm buys another company, it inherits not just its assets but its liabilities as well, including debt, leases and any pension deficit.’
Legal & General will take over responsibility for Boots’ defined benefit scheme following the deal. It insures all 53,000 members in the Boots pension scheme, making it the largest single transaction of its kind.
Boots will bring forward around £170m of payments it had already agreed to funnel into the scheme and will hand over an extra £500m. The company said it explored ‘a range’ of options and this is ‘the best way to safeguard members’ benefit against market uncertainty, improved life expectancies and other risks’. A previous agreement by Walgreens to guarantee the scheme has been scrapped and replaced with a smaller, temporary guarantee.
Alan Baker, chairman of trustees for the scheme, said: ‘This agreement with Legal & General gives added protection to our members’ long-term benefits by removing market uncertainty and other financial exposures. ‘We welcome the additional payment from Boots in addition to the sum it has already committed. As a result, the scheme will not be reliant on Boots to pay benefits for members and pensions will be protected for decades to come.’
Boots managing director Sebastian James said: ‘This will provide greater certainty to both the scheme members and to Boots.’
Walgreens, which bought Boots in 2014, is under pressure to sell the chemist to focus on its US business. Italian billionaire Stefano Pessina is the largest single shareholder in Walgreens Boots Alliance, which is one of the world’s biggest pharmacy chains.
It is listed on the US stock market but Pessina and his partner Ornella Barra retain an iron grip on the company. The 82-year-old was chief executive of the US retail chain for five years before stepping into the role of executive chairman in 2020.
Pessina built his pharmacy empire in the 1970s and 1980s to create Alliance Sante. He merged it with Britain’s Unichem in 1997 before buying Boots in 2006.
