- High Street pharmacy was put up for sale last year with a price tag of £7 billion
- But American owner Walgreens Boots Alliance returned a few months later
- Experts say a pension deal could make it easier for Walgreens to sell
Boots has sold its pension scheme to Legal & General for £4.8 billion, paving the way for a possible sale of the 174-year-old pharmacy chain.
The High Street chemist was put up for sale last year with a price tag of £7 billion, but US owner Walgreens Boots Alliance returned a few months later.
The company said an “unexpected and dramatic change” in market conditions had caused the sale process to be halted.
Experts said yesterday that the pension deal, which was one of the largest of its kind, could make it easier for Walgreens to sell.
Private equity giants Apollo, TDR Capital and Sycamore pitched for Boots when it hit the market early last year.
Iron grip: Italian billionaire Stefano Pessina, shareholder of Walgreens, and his partner Ornella Barra
Walgreens later said that no third party could make an adequate offer due to the turmoil in global financial markets.
Former Boots corporate finance boss John Ralfe said the sale of the pension pot had removed a “stumbling block” to a sale. But he warned that “it does not make the underlying fundamentals more attractive.”
Russ Mould, investment director at broker AJ Bell, said Walgreens could “reinvigorate” a sale because “you could say the picture is a little different now.” He said inflation is cooling, interest rates have peaked and stock and bond markets are “recovering amid broader optimism.”
“From any buyer’s point of view, the fewer liabilities associated with an asset, the more attractive it can be. When a company buys another company, it inherits not only the assets, but also the liabilities, including debts, leases and any pension shortfalls.’
Legal & General will take over responsibility for Boots’ defined benefit scheme following the deal. It will insure all 53,000 members of the Boots pension scheme, making it the largest transaction of its kind.
Boots will bring forward around £170 million in payments it had already agreed to funnel into the scheme, and will hand over a further £500 million. The company said it has explored “a range” of options and believes this is “the best way to protect members’ benefits against market uncertainty, improved life expectancies and other risks.” A previous agreement by Walgreens to guarantee the settlement has been scrapped and replaced with a smaller, temporary guarantee.
Alan Baker, chairman of the scheme’s trustees, said: ‘This agreement with Legal & General provides additional protection to our members’ long-term benefits by removing market uncertainty and other financial risks. ‘We are pleased with the additional payment from Boots on top of the amount already promised. As a result, the scheme will not be reliant on Boots to pay benefits to members and pensions will be protected for decades to come.”
Boots managing director Sebastian James said: ‘This will provide greater certainty for both participants and Boots.’
Walgreens, which bought Boots in 2014, is under pressure to sell the pharmacy to focus on its US business. Italian billionaire Stefano Pessina is the largest individual shareholder of Walgreens Boots Alliance, one of the largest pharmacy chains in the world.
It is listed on the US stock market, but Pessina and his partner Ornella Barra maintain an iron grip on the company. The 82-year-old was CEO of the US retailer for five years before taking on the role of executive chairman in 2020.
Pessina built his pharmacy empire in the 1970s and 1980s to found Alliance Sante. He merged it with Britain’s Unichem in 1997 before buying Boots in 2006.