Vericool Finance

Until recently, everything seemed to be going swimmingly for the lobbyists masterminding private equity’s campaign to present a more positive image to the British public. A new voluntary code on disclosure was in place, Government had reined in critical ministers, and the brouhaha surrounding the proposed Sainsbury’s buyout had faded.

Then Kohlberg Kravis Roberts – a leading member of the consortium stalking Sainsbury – invited the antagonists to put their gloves back on, announcing a £10bn bid for another high street icon, Alliance Boots.

Given Boots’ entrenched position in the UK pharmacy market, this bid is politically sensitive. Chairman Sir Nigel Rudd turned it down, but everyone expects KKR to return with a higher offer.

The odds of success are higher than at Sainsbury’s, not least because deputy chairman Stefano Pessina – the Italian “silver fox” billionaire who built up Alliance UniChem and negotiated its 2006 merger with Boots – is the prime mover behind KKR’s approach. Pessina is frustrated that the financial markets have undervalued Boots and argues he can pursue growth plans more efficiently if the company is taken private.

Yet there’s a whiff of a cosy stitch-up. The fact Pessina wants to work with the existing management team throws up an obvious conflict of interest. He can already count on the support of at least one board director, namely his girlfriend Ornella Barra.

Few expected this outcome when Alliance UniChem and Boots merged, but in some ways shareholders should be profoundly grateful to Pessina – At least he has highlighted the company’s potential worth.

Still, it’s obvious what he’s planning: he’ll increase Boots’ relative small debt and milk the company for all the cash it has. If Boots is to be sold, the fairest course would be to hold a public auction, but the likelihood is that a slightly higher offer of around £10.60 per share will do the trick: it would be a face-saving measure for the Boots’ board and a tempting prospect for increasingly short-termist investors.

It won’t do much to allay the fears of either Boots employees of the wider public, but it should act as a wake-up call to supine public companies and the institutional investors who should be backing them. If PLCs were more efficient and entrepreneurial, and if shareholders were more vigilant, private equity would not be able to have such a field day.