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Asia’s richest man makes £5bn bid for Boots

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mukesh ambani - Rajat Gupta/EPA-EFE/Shutterstock
mukesh ambani - Rajat Gupta/EPA-EFE/Shutterstock

Asia's richest man has joined forces with US private equity giant Apollo to launch a £5bn bid for Boots.

Mukesh Ambani's Reliance Industries is part of a consortium that has lodged a binding offer for the chemist chain.

The move puts the investors among the favourites to sweep up the international arm of Walgreens, the US retail giant which took control of Boots in a deal worth £9bn in 2014.

As part of the offer, Walgreens would have the option to hang onto a minority stake in Boots. It comes after a rival consortium of the Issa brothers, who own Asda, and TDR capital were reported to be going cold on a deal.

Walgreens hired bankers from Goldman Sachs to find a buyer at the end of last year. It has put a £7bn price tag on the UK chain after selling its wholesale arm - Alliance Healthcare - in 2021 for $6.5bn (£4.8bn).

Chris Beckett, head of equity research at Quilter Cheviot, said: “The price offered is also possibly lower than initially hoped for by Walgreens, and could be as a consequence of recent market volatility.

"Clearly Walgreens wants to move now and get on with its growth plans, rather than hold out for a better price."

Boots, which is almost 180 years old and boasts 2,000 stores that employ around 50,000 staff, has attracted keen interest from buyout funds. CVC and Bain were among the early contenders for the business, but have since pulled out of the process.

Recent efforts to revamp the store estate had fuelled speculation that the business was being primed for sale. Walgreens had faced criticism in the past for failing to invest enough money to modernise the retailer, which is facing challenges to its market share.

Boots has proven relatively resilient to the digital upheaval that has triggered a wave of retail collapses on the high street, however, because of its dominance in prescription and beauty products.

The chemist chain, which is run in the UK by the former Currys boss Seb James, reported retail sales had climbed by 22pc at the end of March. James said the retailer had a “rejuvenated store portfolio and increasingly powerful online presence”.

Despite the jump in sales, Boots is facing an increasing threat from the expansion of online retailers and supermarkets into beauty products, while budget retailers like B&M are increasingly undercutting it on pharmaceutical basics.

That poses a two-pronged challenge for potential buyers, who face having to invest substantial sums to transform the stores alongside the expense of protecting the company's market share through price cuts.

Meanwhile, any deal could have potential implications for the £7bn Boots pension scheme, despite trustees having negotiated a guarantee with Walgreens.

While John Ralfe, the independent pensions consultant, praised the guarantee, he said: "It's bad news for Walgreen shareholders, because they are still on the hook, despite selling the majority of Boots.

"The only way out is to pay for a costly bank guarantee, or replace the guarantee with a big cash contribution.”

A takeover of Boots would dovetail with Ambani’s attempts to diversify Reliance beyond owning the world's largest crude refinery - Jamnagar Refinery - and towards challenging Amazon and Walmart in India's burgeoning online retail market.

The Indian business magnate, who has a net worth of $92bn (£73bn), could likely eye an expansion of the Boots across Asia. Walgreens has already attempted to crack the market with Boots Thailand as well as a franchise deal in 2016 to sell products in South Korea.

It would also deepen Ambani's financial links to Britain. The Reliance chair nicknamed "Muku" already owns the English country club Stoke Park in Buckinghamshire and the 260-year-old toy retailer Hamleys, which he snapped up for £68m in 2019 through Reliance Retail.

Despite his vast wealth, not all deals have gone Ambani's way. In September, the billionaire was trumped when the private equity consortium Warburg Pincus and Apax Partners launched the winning bid for the Dutch arm of the mobile operator, T-Mobile.

More recently, he has faced scrutiny for the profits Reliance has made through the sharp jump in global commodity prices triggered by Russia’s invasion of Ukraine.

Despite burnishing its green credentials by revealing $142bn worth of investments designed to shift the business away from fossil-fuels, Reliance has expanded its coal mine in Australia in response to surging coal prices.

The company has been buying distressed crude-oil cargoes at a discount to feed the world's biggest refining complex, while pushing back maintenance of the facility to produce more diesel and petrol. Reliance shares had increased by nearly a fifth since the war began on February 24 to the end of April before gains were wiped by a global stock market rout.

Ambani's personal wealth, meanwhile, has risen by $8bn to £92.4bn since the war started, according to Bloomberg's Billionaires Index.

Boots declined to comment.

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