Today I write my Beez Peak late. In theory it should be published on Monday, but in reality I prefer to avoid saying trivial things, unless much has happened. Instead today there is something to say.
A reflection on the mega-offer launched by KKR on Walgreen Boots Alliance, the giant of pharmacies listed in New York, headed by the Italian entrepreneur Stefano Pessina. The transaction, revealed by Bloomberg, is worth over 70 billion dollars, summing up equity (about 56 billion in capitalization) and debt (16.8 billion).
It would be the biggest LBO in history, as Tesla was not delisted last year. To remove from the Stock Exchange the electric car manufacturer group, it would have taken 420 dollars per share, for a total of just 71.3 billion dollars, its founder Elon Musk had announced. But then Musk had changed his mind, thus leaving the record of the biggest buyout in history to the one again led by KKR, but together with TPG, on the US electric group TXU Energy in 2007 for an enterprise value of 45 billion dollars (about 32 billion of equity).
The other big buyout had always been in the same period and always with KKR as the protagonist: the one on First Data, for 29 billion dollars, including debt (26.4 billion just the equity). After that, just below, the 25.1 billion dollars of the infamous RJR Nabisco takeover made in 1988 (see here the New York Times at that time). As is known, it was not an easy walk, because the story ended after a financial battle that caused the stock price to rise dramatically, to 109 dollars per share, compared to the 55 dollars where the stock quoted before the series of bids and counter-bids started. Eventually KKR got the better of Ross Johnson and Shearson Lehman.
In any case, we did not hear about these mega-mega deals since before the 2008 crisis, when debt was available without problems. Too much. And what happened afterwards proves it was an hazard. It’s impressive that a few days ago, commenting on the hypothesis of a delisting for Walgreens to this mind-boggling figure, Blackstone‘s founder Stephen Schwarzman said during a speech at a Reuters conference in New York: “It might be possible. It’s a huge stretch doing things over $50bn. You need at least $20bn of equity. Could you find that in today’s world? Maybe. Thirty billion of debt you could probably get. It’s a little tougher on the equity” (see here the FT). In short, today finding 30 billion dollars in funding is much more reasonable than thinking of finding 20 billion in equity.
PS: For KKR it would be a return. In July 2007, in fact, KKR financed the management buyout of Alliance Boots, the most important chain of pharmacies in the United Kingdom, in partnership with Mr. Pessina, then deputy chairman of Alliance Boots. It was an operation of 11.1 billion pounds (then 22.2 billion dollars), it was financed at a cost of 9 billion pounds and was then classified as the largest buyout in the history of Europe. Subsequently the American Walgreens acquired Alliance Boots in a two-stage deal, which led to the merger of the two entities in 2015, with Pessina who became a shareholder of the new Walgreens Boots Alliance group with a 16% stake, executive vice president and chief executive officer and with KKR which is definitively left the capital of the group in November 2016. In August 2017, then, the Alliance Santé Partecipations of Pessina bought from Kkr the 50% stake of the Italian jv Alliance Healthcare Italia, thus rising to 100% of the capital (see here a previous article by BeBeez).