Boots Board Under Attack

The board of Alliance Boots PLC came under attack today from the chairman of the health and beauty group's pension scheme, John Watson, for recommending an 11 bln stg offer from Kohlberg Kravis Roberts (KKR), the US private equity group, and executive deputy chairman Stefano Pessina without ensuring the scheme's future planning and funding.

At the Court Meeting and Extraordinary General Meeting convened to rubber stamp the 1,139 pence agreed offer, Alliance Boots' chairman Sir Nigel Rudd also drew flak from small shareholders opposed to the deal.

Their opposition was, however, in vain as the deal was overwhelmingly backed by investors.

Acceptance of the offer means Alliance Boots shares will de-list on June 28, the group becoming the first FTSE 100 company to fall into private equity hands — less than a year after it was created through the merger of Boots Group PLC and Alliance UniChem PLC.

Watson, chairman of the Boots Pension Scheme since 1998, said he was “disappointed” the board had backed KKR/Pessina's offer before agreement had been reached on how to fund the scheme's current deficit of 305 mln stg.

“I take no pleasure in coming to this meeting and asking a question,” he said, reiterating the trustees view that a new private owner taking on 8.2 bln stg of debt has “serious implications” for the position of the scheme.

He said that although meetings with KKR/Pessina were proceeding, no satisfactory agreement has yet been made.

“What will you (the board) do to influence … to give the scheme the support it deserves, he asked Rudd.

The chairman responded by saying he had been assured by KKR/Pessina that the Boots scheme will continue to be one of the best funded in the sector.

“You have my assurance that over the next two or three weeks I will be pressing for a resolution,” he said.

A spokesman for KKR/Pessina confirmed that talks with the trustees are continuing. “We'd like to think that both parties are working to a constructive conclusion,” he said.

He declined to comment further. However, industry sources suggested the gap between what the trustees want and what KKR/Pessina are prepared to give is not huge — tens of millions of pounds rather than hundreds of millions of pounds.

At the meetings small shareholder Martin Symons launched a withering attack on Rudd and his fellow directors, accusing them of being “taken in” by Pessina.

“I have a nasty feeling this deal has been planned long long ago,” he said. “I think this deal does not bring credit on the City of London … KKR, they are everywhere and I think it's deplorable, quite deplorable.”

Symons said he would no longer shop at Boots and was sporting his purple tie as a sign of mourning at the death of Boots as a PLC.

Rudd insisted all parties involved in the deal had acted in “utmost integrity”, adding “I take exception to anybody who says they haven't.”

A total of 271.9 mln (96.3 pct) of votes cast at the Court Meeting were in favour of the scheme of arrangement takeover, with just 10.4 mln (3.7 pct) against. For the deal to go through, some 75 pct of votes cast had to be in favour.

At 1.29 pm, shares in Alliance Boots were down 1/2 pence at 1,128-1/2 pence. The stock was trading at just 815 pence before the group announced on March 9 it had received an approach.

KKR/Pessina outbid Guy Hands' Terra Firma vehicle, which had been working with the Wellcome Trust medical charity, to win Alliance Boots.