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Last Updated: Wednesday, 25 April 2007, 06:40 GMT 07:40 UK
Cost and job worries in Boots bid
Boots shop front
The battle for Boots is all but over, with KKR set to take control
An 11.1bn ($22.2bn) takeover bid for chemist chain Alliance Boots has raised questions over the price the buyers are paying and the outlook for jobs.

Some analysts have claimed that private equity firm Kohlberg Kravis Roberts (KKR) and Boots' deputy chairman Stefano Pessina are paying too much.

Trade unions warned that there may be job cuts and shop closures as a result.

However, KKR partner Dominic Murphy told the Financial Times that the firm would not fire staff or shut shops.

"The business has an important relationship with the British consumer and we want to nurture, invest and grow it and protect KKR's reputation as well," Mr Murphy explained in an interview with the newspaper.

He added that KKR would remain committed to Boots for "at least five years".

KKR told the BBC that it already owned 29.3% of Alliance Boots stock.

It added: "We plan to grow the business and the brand and make the company a global leader."

"This by implication means that in the years to come, if we own the business, we will employ more people in the future than we do today and the business will have received significant investments," it added.

More risk?

Mr Murphy's comments come amid growing concerns about the number of buyouts being led by private equity firms and their motives behind the purchases.

Critics have accused the firms of being asset raiders who spot undervalued companies, load them with large amounts of debt, cut costs and jobs, and then sell them off to make a profit with little regard for the long-term future.
They might struggle to get the right rate of return without big increases in revenues and margins
Nick Bubb, Pali International

These fears have been fanned by the bidding war that briefly broke out for Boots, and which led to KKR putting an extra 500m on the table.

The rival bidder for Boots, a consortium led by private equity firm Terra Firma, decided to withdraw its interest on Tuesday after KKR upped its offer.

Earlier this month, the GMB trade union wrote to the Health Secretary Patricia Hewitt claiming that the takeover could lead to pharmacies being shut.

"The offer has now gone up, which must put even more pharmacies at risk," said Paul Maloney, national officer of the GMB.

"The Secretary of State must act now and call in the private equity bidders to explain how the numbers add up," he added.

'Rate of return'

Analysts said that the more KKR pays, the more it will have to boost Boots' earnings to make the deal worthwhile.

"I think they might struggle to get the right rate of return without big increases in revenues and margins," said Nick Bubb, an analyst at Pali International.

"At the moment it is hard to see where they are coming from."

Another concern is that KKR and Mr Pessina may also have to lift payments to the Boots pension fund, which is running a deficit.

"The higher the debt, the more the pension fund trustees are likely to want," said Richard Ratner, an analyst at Seymour Pierce.

Alliance Boots is best known in the UK for its 2,600 Boots the Chemist shops, and it also has 400 overseas outlets in countries including Thailand and Italy.

As well as the High Street retail arm, the company is a wholesale supplier to more than 125,000 pharmacies, health centres and hospitals. The company was formed last year through the merger of Boots and Alliance UniChem.


SEE ALSO
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Terra Firma drops Boots bid plan
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Bidding war breaks out for Boots
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Boots bid 'unsettling' for staff
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German firm silent on 'Boots bid'
02 Apr 07 |  Business
Boots gets improved bid approach
30 Mar 07 |  Business
Boots rejects 9.7bn bid approach
12 Mar 07 |  Business

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