Walgreens Boots Alliance Inc. abandoned the sale of its Boots drugstore chain that was expected to bring more than $6 billion after failing to secure the desired valuation for the U.K. business amid a turbulent credit market.
The American health-care group had been in talks with a consortium between Reliance Industries Ltd. and Apollo Global Management Inc. over the sale of Britain’s biggest pharmacy chain. The two parties couldn’t reach an agreement on value, which prompted Walgreens to pull the sale, people familiar with the matter said. Reliance had committed financing for the deal, Bloomberg News reported earlier in June.
As a result of “market instability severely impacting financing availability, no third party has been able to make an offer that adequately reflects the high potential value of Boots,” Walgreens said in a statement.
Walgreens had been exploring the Boots sale amid increased focus on its North American business, where it had begun adding primary-care centers to its U.S. locations and launched an initiative to enroll patients in clinical trials. Walgreens chief executive officer Rosalind Brewer left open the possibility of other moves for the UK pharmacy chain in a statement.
“The board and I remain confident that Boots and No7 Beauty Company hold strong fundamental value,” she said. “Longer term, we will stay open to all opportunities to maximize shareholder value for these businesses and across our company.”
Litmus Test
The proposed Boots sale was considered a litmus test for dealmaking in the U.K. with credit markets becoming increasingly fragile. The plans ran aground after financing conditions that supported a series of debt-fueled takeovers of British companies last year have mostly come to an end. Banks have been cutting their exposure to leveraged loans for risk of being saddled with debt they can’t then sell on to investors.
That’s cast a shadow over at least $25 billion of transactions in Europe. Banks have run into problems offloading £6.6 billion ($8.05 billion) of debt tied to Clayton Dubilier & Rice’s take-private of U.K. supermarket chain Wm Morrison Supermarkets Plc.
The focus is now on how the financing will come together for deals including the possible £5 billion ($6.1 billion) sale of U.K. gas station operator Motor Fuel Group Ltd. Meanwhile, Reckitt Benckiser Group Plc has been struggling to attract bidders for its $7 billion infant nutrition unit.
Despite being the front-runner to buy Boots, the Reliance-led consortium was offering less than the £7 billion ($8.54 billion) Walgreens had initially sought. Their main competitor in the bidding was a consortium of Britain’s billionaire Issa brothers and TDR Capital, although the race between the two lost steam as financing markets became weighed down by concerns around inflation and the war in Ukraine.
Boots has a sprawling web of more than 2,000 U.K. stores, and many of them need to be renovated and adapted to changing consumer trends. Boots has also been slow to catch up with online shopping, just one of the areas where investment is needed. There are also billions in pension guarantees that would have to be taken on by a purchaser.
