Boots in trouble as bids fail to show up

Boots faces fresh uncertainty after its U.S. owner abandoned plans to sell the business – but has opened the door to a sale once market conditions improve.

The Walgreens Boots Alliance said this week that a review launched in January concluded that the U.S. group should All rights reserved UK pharmacy and beauty retailer.

CEO Roz Brewer told investors “the business should be good enough for us to retain and pursue strategic opportunities for”.

She acknowledged that while “about 8 to 10 interested parties” were initially interested in Boots, the downturn in financial markets prompted Walgreens to “slow down the opportunity.”

A banker with knowledge of the sales process said that while market conditions were certainly a factor, the underlying conditions of UK chains were also discourage bidders.

“The main reason they don’t get the price they want is because not enough people are interested – once they’ve done their due diligence, even those that are closed [Boots] Underinvestment is more than they think. “

Neil Saunders, managing director of GlobalData Retail, said the review had left Boots “in trouble”.

“No one is under the illusion that this is a temporary position, and in light of that, [Walgreens] It’s really not going to put a lot of money into it,” he added.

He had an IPO on his mind — something Walmart Group planned British supermarket group Asda After its proposed merger with J Sainsbury was blocked, it was also left off the agenda given market conditions and business conditions.

Brewer said Walgreens will continue to invest in Boots. “Our thinking is . . . the business is healthy and we will continue to make sure it stays healthy.”

She stressed that Boots’ performance is improving. Its market share is rising across all categories, especially its beauty market share, helped by the collapse of hundreds of department stores.

Online retail sales accounted for 13% of overall retail sales, double what it was before the pandemic, while same-store sales rose 24% in the three months to the end of May as visits to 2,000 stores increased.

“The execution of our transformation plan, coupled with a strong focus on expanding key categories in healthcare and beauty, has driven strong sales and market share growth and further strengthens our position as the UK’s leading health and beauty retailer,” Managing Director Seb James said UK and Ireland Director of Boots.

Boots has tightened pricing and revamped its popular loyalty program to reduce market share losses for supermarkets and various discounters.

Like its parent company, it is branching out into primary care with prescription pharmacists and “online doctors” services. While this strategy is not new, Boots believes the opportunity is now greater given the scale of the challenges facing the NHS in the wake of the pandemic.

But critics say its tired and understaffed stores are damaging its reputation and its online offerings are still not top-notch. Boots countered that with the better part of the past three years spent fixing business infrastructure, customers will start to see more tangible improvements to their business. shop real estate.

“We had to spend a lot of time first sorting out things like IT, product range and new brands,” said one insider, adding that senior management now has more autonomy due to the change in Walgreens’ own strategic direction right.

Even its critics acknowledge Boots has many advantages. “There’s a lot of appeal to this business, and it can pull a lot of leverage,” the banker said. “But there’s also a lot of wood to chop, and Walgreens has really only been nibbling on the edges so far.”

There are also problems with Boots’ defined benefit pension plan, which is well funded but still large relative to the group’s underlying profits.

John Ralfe, who oversaw the scheme and is now an independent pensions adviser, said Walgreens had backed the scheme with guarantees that few financial buyers were willing to undertake, and considerable interference by the pensions regulator in acquisitions Power is a deterrent to some buyers.

Walmart injects cash into Asda pension plan, then sells it to insurers, clearing the way for TDR and Issa brothers buy a supermarket Ralph thinks Walgreens may have to do something similar.

Boots said it had a good relationship with superannuation trustees and that the scheme was in good financial shape.

Saunders concluded that the end of the sale process was “not the worst-case scenario” for Boots and its 50,000 employees, and that the company was far from experiencing the kind of financial distress that Debenhams or Arcadia experienced.

But the lingering uncertainty is “certainly not big.”

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