Tuesday, 8 July 2014

Something afoot with Boots

I have been in two minds about publishing this piece but I have now run into a bit of a brick wall, so I have decided I may as well go with what I know.

Last week a good source hinted to me that there may be something untoward going on with Alliance Boots's debt.

Now, when I thought about this I have to admit it doesn't make a lot sense although clearly I am not in possession of all of the facts.

All I do know is that when KKR bought Alliance Boots in 2007 for £11.1 billion, the buy-out firm used about £9 billion - at eleven times EBITDA - of debt to finance the deal. And last time I checked, the refinancing of this debt mountain should begin this year (according to a Financial Times article published in 2011, £1 billion of debt is due this year, another £5 billion needs to be refinanced in 2015, with another £1 billion due in 2016 and £800 million in 2017).

Indeed, Richard Fletcher, my old boss from time at The Daily Telegraph who now runs the business section at The Times, wrote quite an interesting piece on a potentially tricky Alliance Boots refinancing back in 2011.

Here is a link to Fletch's piece: http://www.telegraph.co.uk/finance/comment/richardfletcher/8517881/Alliance-Boots-will-have-to-refinance-debt-in-a-very-different-world.html

Since Fletch's article, US drugstore giant Walgreen bought 45pc of Alliance Boots for $6.7 billion, allowing to KKR to a decent return on its original investment.

However, according to this Reuters article - http://uk.reuters.com/article/2012/06/19/us-allianceboots-offer-idUSBRE85I0IT20120619 - if Walgreen wants to buy the remainder of Alliance Boots it will assume the company's outstanding debt, which stood at just over £7 billion (I have seen other reports say almost £8 billion) at the company's 2011-2012 year end.

Recently, the jungle drums have been beating about the possibility of Walgreen buying the remainder of Alliance Boots so that it can participate in the great tax inversion trend currently sweeping across the US and Europe i.e. the theory being that Walgreen buys the remainder of Alliance Boots and moves its tax base to the UK or Switzerland.

Ben Marlow, formerly of The Sunday Times but now at The Daily Telegraph, broke the story a few months ago about the potential Walgreen move to buy-out the rest Alliance Boots. Here is a link to his piece: http://www.thesundaytimes.co.uk/sto/business/Companies/article1411859.ece

My source reckons the talk about the Walgreen bid for the remainder of Alliance Boots is linked to the shenanigans going on with the company's debt. If anybody has a clearer idea about what is going on with Alliance Boots's debt, please don't hesitate to get in touch - anonymously, of course - at betaville1@gmail.com.

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