Boots moves closer to London float but billionaire Westons circle
With one potential suitor out of the running, high street titan Boots is moving closer to a London float, a move that would mark a return to the FTSE 100 for one of the UK’s biggest retailers and deliver a major boost to UK capital markets.
The 177-year-old British pharmacy saw the withdrawal of Sigma Healthcare, an Australian pharmacy giant, from talks over a potential £7.5bn takeover on Monday, leaving only the billionaire Weston family in the running for a private sale.
The other option on the table for Boots is an initial public offering (IPO) in London in what would be a welcome move at a time when a host of big-name listings are either crossing the pond to New York or being taken off the market entirely by private buyers.
Paddy Power owner Flutter became the latest London listing to ditch the capital for New York last week, after it abandoned its secondary listing in the UK to pursue an expansion in the US.
But Boots, which has operated in the UK since 1849, could be set to move in the opposite direction.
It emerged in April that the pharmacy and retailer had hired advisers to get the firm into shape ahead of a potential London, which could notch a value as high as £7bn.
Sigma’s departure from sales talks has strengthened the prospect of an IPO for Boots, according to Russ Mould, investment director at AJ Bell.
The Australian pharmacy firm’s share price jump on Monday – up more than six per cent to 2.8 Australian dollars (£1.48) – suggests investors saw its potential acquisition of Boots as a “bullet dodged,” Mould said.
He added that this is more likely to reflect the “risks associated with any big international takeover rather than […] Boots’s own merits as a business.”
“A Boots IPO would be a much-needed boost for the London market. There have been several high-profile departures thanks to takeovers or a change in listing venue in recent years and this has been compounded by a distinct lack of fresh blood coming in,” he said.
IPO ‘not straightforward’
But the retailer has insisted that any talks over a sale or a float are in their very early stages.
Retail analyst Nicholas Found cautioned that Sigma’s exit “does not make a Boots IPO straightforward”.
The pharmacy would need to convince investors that it can support an ambitious valuation in what remains a competitive market, he said.
Found added that Boots has “fared better than many legacy retailers in its years away from the London market”.
In 2007, Boots, which was then merged with pharmacy company Alliance UniChem, became the first ever FTSE 100 firm to be bought by a private equity firm.
It was later bought by US pharmacy titan Walgreens before its parent company was snapped up last year by private equity firm Sycamore Partners for $23.5bn, who then spun Boots out as a standalone company.
Boots turned a pre-tax profit of £337m in the year to August last year, according to its most recent corporate filing, up 25 per cent from the previous year.
The firm has expanded its offering in the booming beauty and wellness markets in recent years, offering more than 500 beauty brands including its billion-dollar No7 outfit.
Though these years in private ownership have been far from disastrous for Boots, its complex ownership structure means investors will require some convincing over the firm’s value.
“Parts of the store estate need investment, digital still has room to sharpen and investors will want a clearer view of how Boots grows beyond traditional retail pharmacy,” Found said.
New Boots boss ‘brings buzz’
One key asset with which the business would be able to woo potential investors is its incoming chief executive, Alex Baldock.
The new boss, fresh from a successful turnaround of tech retailer Currys, is viewed favourably as a competent leader, capable of presenting businesses well to shareholders.
Baldock was praised by analysts when he stepped down from Currys in March, with stock broker Panmure Liberum saying the retailer “has never been in better shape”. His appointment has the potential to create “investor buzz,” Mould said.
Aside from a London float, the billionaire Weston family is still at the negotiating table.
The Westons, through their Wittington Investments vehicle, are the largest shareholders of FTSE 100 giant Associated British Foods (ABF), which earlier this year unveiled plans to spin off budget clothes seller Primark.
The family’s Canadian outfit already owns grocery chain Loblaws and pharmacy business Shoppers Drug Market.nalysts have said these assets give the Westons the credibility needed to run a high street stalwart like Boots.
Found said that the Westons “understand long-term retail ownership,” and would likely attempt to expand Boots’s beauty offer and “build more value through loyalty and digital without having to satisfy public markets from day one”.
“The question is whether Boots is worth more as a public market story or as a strategic asset in the hands of a long-term retail owner,” he added.