IMD-1-0258 © 2007
Hamilton, Stewart; Hutton; Sarah
The union between Boots the Chemist; the UK’s top retail pharmacy chain; and Alliance UniChem; one of Europe’s largest drug wholesalers; was declared a match made in heaven by the two chief instigators of the deal; Sir Nigel Rudd; chairman of Boots; and Stefano Pessina; executive deputy chairman of Alliance UniChem. The £7 billion merger was said to be a true merger of equals and would form a springboard to turn the business into a global health and beauty care company. Both Rudd and Pessina put a huge amount of effort plus time into convincing their respective stockholders to accept the deal. The effort and the combined company floated on 31 July 2006. Less than eight months later; Pessina took centre stage again for another announcement.
In what was viewed as a shocking reversion by many City observers; not to mention by the Alliance Boots investors; he made a formal bid; backed by the private equity firm Kohlberg Kravis Roberts (KKR); to take the company private. It was not just the speed of the turnaround which was an issue. Pessina was executive deputy chairman of Alliance Boots; managing integration and the strategy of the merged business. He was also the largest individual shareholder with a 15% position in the company. To complicate issues further; many of the executive and non-executive board members had previous connections with Pessina; as did some of the advisers involved in the proposed deal; Goldman Sachs; acting for Alliance Boots; was concurrently advising KKR on another deal; and Alliance Boots and KKR were using the same monetary PR business. It was not possible for investors to know where to turn to get an objective viewpoint of the situation.
Learning objectives: Participants should understand 1) that the stewardship of an independent board by the chairman can sometimes be especially troublesome in certain conditions it remains one of his principal responsibilities; 2) that the resolution of multiple conflicts of interest is often not clear cut; 3) that the aim of maximising shareholder value can include numerous conflicting options and choices; 4) some of the underlying factors driving the private equity sector.
Subjects: Conflict of interest; Responsibilities of board members and the chairman; Independent directors; Shareholder value; Shareholders’ rights; Private equity; Takeover bid; Bidding war
Settings: United Kingdom; Europe; Pharmacy; Beauty and healthcare retail; Pharmaceutical wholesale; Employees >100;000 worldwide; Revenues >£14 billion; Pre-tax profits >£600 million; 2005-2007
Related Case Solutions & Analyses:
Todd Williams: Finance in the Middle (A)
Pension Plan of Bethlehem Steel–2001
Pepsico Changchun Joint Venture: Capital Expenditure Analysis
Forex Exchange Hedging At GM
INDALEX LTD
POLAR SPORTS COMPANY
Saito Solar – Discounted Cash Flow Valuation
The Maple Acquisition of the TMX Group Inc.
Stock Trade Project
Deutsch Bank
