‘Boots faces uncertain time as new owners prepare to take control’

A sale or IPO of Boots may follow. And what role might dealmaker Stefano Pessina play? The ownership of Boots, one of the high street’s most venerable names with a 175-year heritage, is soon to change.

It was confirmed this week, following lengthy speculation, that private equity house Sycamore Partners is buying Boots’ parent Walgreens Boots Alliance (WBA) for $10bn.

However, Sycamore’s plans for the UK health and beauty institution, one of the most trusted of brands, remain unclear for the time being – Sycamore’s takeover of WBA will not complete until late this year.

Nothing specific was said about the future of Boots in the deal announcement, although it did state that WBA “will continue to operate under Walgreens, Boots, and its trusted portfolio of consumer brands”.

But for how long?

On one hand, Boots is at present a pillar of the WBA group. It’s been a star of the show for some time and delivered consecutive quarters of growth for getting on for four years. WBA overall is a turnaround case and Boots’ performance makes it a valuable source of sales and income.

But on the other, Sycamore’s interest is thought by many to centre upon what can be done in the US. In that scenario, Boots therefore is a bit of a sideshow from which value might be created in other ways.

The cost increases being borne by British retailers following last Autumn’s Budget may also take some of the shine off Boots for Sycamore – only this week they were cited by Poland-listed Pep&Co as one reason for the decision to consider a sale of Poundland – and were flagged by Boots chief executive Anthony Hemmerdinger in his most recent trading update.

However, Hemmerdinger also said that “with positive momentum behind us and a clear plan in place, the business is focused on navigating these and continuing to deliver long-term, sustainable growth”.

“It’s been a star of the show for some time and delivered consecutive quarters of growth for getting on for four years.”

Boots certainly has fuel in the tank. In the most recently reported quarter to November 30 last year, total comparable retail sales were up by 8.1% year on year “with growth across all categories and continued market share gains”.

It had a record-breaking Black Friday and has been benefiting from its Price Advantage loyalty scheme – there was a 3.5% increase in active Advantage Card members. The core beauty category did well, up by 11%, and Boots has been selling through upgrading stores. It revamped 30 in that quarter. How Boots performed over Christmas will be clear early next month, when WBA next updates on trading.

While all that burnishes Boots’ appeal should Sycamore choose to hold on to it, it also potentially makes it attractive to hive off through a sale or an IPO. Retail analyst Nick Bubb noted this morning: “The Boots business looks eminently floatable, but we will probably have to wait until this time next year to see it attempt an IPO” because of the timing of the deal’s completion.

What will be fascinating is whether tycoon Stefano Pessina, veteran dealmaker and corporate 3D chess player extraordinaire, gets involved. Sky News journalist Mark Kleinman reported at the end of last year that Pessina was interested in taking on Boots, a business with which of course he has a long association predating WBA.

Pessina controls a 17% stake in WBA, and following the sale to Sycamore will “maintain a significant equity investment in the businesses”.

Watch this space.