Conflict resolution

13 March 2007 By John Foley Follow @johnsfoley

Investors worry the deputy chairman, Pessina, will buy Boots on the cheap in cahoots with KKR. So why not let them share in the upside? Not all would want to accept "stub" equity and there would need to be a cash alternative. But it could be the best chance for a fair deal.

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Alliance Boots rejected a proposed offer from deputy chairman Stefano Pessina and private equity firm KKR that valued the UK healthcare group at £10 a share, or £9.6bn. Including net debt and pension obligations, the offer equated to around £11bn.

The company's board consists of twelve members, overseen by chairman Sir Nigel Rudd. All, including Rudd, were previously on the boards of Alliance Unichem or Boots, the two companies whose merger created Alliance Boots in 2006.

Rudd has overseen other UK companies during complex transactions. As chairman of Pilkington, the glassmaker, he negotiated an offer from Japanese shareholder NSG, securing a 10% raised offer last February. In the same month, in his role as chairman of car dealer Pendragon, he launched two simultaneous bids for rivals Lookers and Vardy.

Pessina holds a 15% stake in Alliance Boots. He and wholesale director Ornella Barra, his longterm partner, were both excluded from the board's deliberations. Barra, as wholesale director, is responsible for Alliance Boots' relationships with the drug companies whose products it distributes.

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