THE WALL STREET
KKR to Earn
Big Payout From Walgreen-Alliance Boots Deal
Private-Equity Firm on
Track to Quadruple Its Investment in the European Pharmacy Giant
Dec. 31, 2014 6:26
Alliance Boots GmbH
completed its two-part sale to
Walgreen Co. on Wednesday,
putting buyout firm
KKR & Co. on track to roughly
quadruple the cash it invested in the European pharmacy giant.
All told, the sale to
Walgreen has put about £4.7 billion ($7.3 billion) in cash and stock
in KKR’s pocket, according to a person familiar with the matter. The
private-equity firm invested about £1.2 billion when it and other
investors, including Alliance Boots Executive Chairman Stefano Pessina,
took the company private in 2007 in the largest-ever European buyout.
A big reason for the huge
haul: KKR and its co-investors accepted stock as part of the purchase
price when Walgreen agreed to acquire Alliance Boots in 2012 in a
two-part transaction. Walgreen shares have more than doubled since the
takeover was agreed upon that June, adding more than $10 billion to
Walgreen on Wednesday
completed the second phase of the transaction, acquiring the 55% of
Alliance Boots that it didn’t buy in 2012. Walgreen, the largest U.S.
pharmacy chain by stores, also changed its name to Walgreens Boots
Alliance Inc., and its stock symbol to WBA from WAG.
The combination creates a
pharmacy empire with more than 12,800 locations in 11 countries and a
vast drug distribution business. It becomes the largest purchaser of
prescription drugs globally, which should boost its leverage in
negotiations with drug suppliers.
Walgreen shares have
soared since the deal was struck despite a postannouncement dip and a
$1.1 billion financial forecasting error earlier in 2014 that prompted
a management shake-up and spooked some investors.
The merger’s completion
brings KKR closer to capping one of the megadeals it led during the
buyout boom that preceded the financial crisis.
buyouts from those years have produced mixed results for KKR. The
firm’s bet on Texas power provider TXU Corp. soured, resulting in a
massive bankruptcy filing in April. KKR’s leveraged buyout of retailer
Dollar General Corp. resulted in
the firm making nearly five times its money.
Alliance Boots, which was
acquired with cash and debt totaling about $18.5 billion, sits
squarely with KKR’s big winners. Buyout firms aim to double their
investors’ money on corporate buyouts; making four times invested cash
in such deals is rare.
Terms of Walgreen’s
acquisition of Alliance Boots remained constant throughout the 2½
years it took to complete, with the U.S. pharmacy chain paying for its
European counterpart with $9.3 billion in cash and 227.7 million
shares. Yet the economics of the transaction greatly improved for the
sellers over that time as Walgreen shares surged.
KKR was poised to do
slightly better than double its money when the deal was struck in 2012
and Walgreen shares traded at $31.96. The stock closed Wednesday at
KKR said Wednesday it owns
about 4.6% of the combined company’s stock.
In all, the Alliance Boots
sellers’ take was worth $27.3 billion as of Wednesday. At the time the
two-part deal was announced, Alliance Boots was valued at $16.2
Mr. Pessina, by eschewing
cash and taking his share in stock, could turn out to the deal’s
biggest winner. The 73-year-old founded Franco-Italian pharmaceutical
wholesaler Alliance Sante SA in 1977 and about three decades later
merged his company with British pharmacy operator Boots Group PLC.
One of the richest men in
Italy, Mr. Pessina is the combined company’s largest shareholder and
will serve as its acting chief executive, replacing
Greg Wasson , who had been
Walgreen’s CEO since 2009 and is retiring with completion of the
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