Alliance Boots (A): too Big for His Boots? Taking a FTSE 100 Company Private Harvard Case Solution & Analysis

IMD-1-0257 © 2007
Hamilton, Stewart; Hutton; Sarah

The £7 billion merger was said to be a true merger of equals and also would form a springboard to turn the business into a global health and beauty care company. Both Pessina and Rudd put an enormous amount of time plus effort into convincing their respective stockholders to accept the deal. The merged firm and the effort floated on 31 July 2006. Less than eight months successively; Pessina took centre stage for another statement. In what was viewed as a shocking reversion by many City onlookers; not to mention by the Alliance Boots investors; he made a proper bid; backed by the private equity firm Kohlberg Kravis Roberts (KKR); to take the company private. It was not simply the speed of the reversion which was an issue. Pessina was executive deputy chairman of Alliance Boots; managing the strategy and integration of the combined business. He was also the biggest individual investor with a 15% stake in the firm.

To complicate matters further; many of the executive and non-executive board members had previous links with Pessina; as did some of the advisers involved in the planned deal; Goldman Sachs; performing for Alliance Boots; was simultaneously guiding KKR on another deal; and Alliance Boots and KKR were using the same fiscal PR business. It was impossible for investors to know where to turn to get an objective view of the specific situation. Sir Nigel Rudd chairman of the board; had his work cut out for him. Learning objectives: Participants should understand 1) that the stewardship of an independent board by the chairman can sometimes be particularly challenging in certain circumstances yet it remains one of his main responsibilities; 2) that the resolution of multiple conflicts of interest is frequently not clear cut; 3) that the aim of maximising shareholder value can involve several conflicting options and choices; 4) some of the underlying factors driving the private equity sector.

Subjects: Conflict of interest; Responsibilities of board members and the chairman; Independent directors; Shareholder value; Shareholders’ rights; Private equity; Takeover bid; Bidding war

Settings: United Kingdom; Europe; Pharmacy; Beauty and healthcare retail; Pharmaceutical wholesale; Employees > 100;000 worldwide; Revenues > £14 billion; Pre-tax profits > £600 million; 2005-2007

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