Possible Boots takeover reignites private equity storm

The storm over the power of private equity funds is set to reignite with the news of a possible takeover of high street chain Boots.

The storm over the power of private equity funds is set to reignite with the news of a possible takeover of high street chain Boots.

It was confirmed last night that US-based takeover giant Kohlberg Kravis Roberts (KKR) is interested in the FTSE 100-listed company which last year merged with rival Alliance UniChem to become Alliance Boots.

KKR, which is working with the group’s deputy chairman Stefano Pessina on a possible deal, is one of the biggest names in global private equity.

It is part of a consortium also currently considering a swoop on supermarket group Sainsbury’s in what analysts estimate could be a £10 billion deal.

The news of the interest in Alliance Boots prompted fresh disquiet from the GMB union which is campaigning for a change in tax arrangements to curb the power of private equity following a string of high profile takeovers.

Private equity firms, which use large-scale borrowing to carry out company buyouts, have been under increased scrutiny after taking on well-known names like the AA, MFI, Madame Tussauds and Alton Towers.

Unions such as the GMB accuse the sector of asset-stripping and blame them for widespread job losses.

It wants Gordon Brown to end tax relief for interest payments on loans used by private equity groups for buyouts.

Paul Maloney, senior GMB organiser, said today: “There you go again, it’s another high street name, a profitable store, well known but getting ready to be asset stripped.”

Milan-born former nuclear engineer Mr Pessina, who became executive deputy chairman of Alliance Boots after the merger last summer, currently owns around 15% of Alliance Boots.

A statement last night said that if a deal were to go ahead Mr Pessina and KKR would work with the existing management to build the company into a “global leader”.

But Mr Maloney said: “Boots is in for the same punishment that other companies have had – asset stripping, looking at property portfolios, flogging them off and running away with bags of cash.”

Private equity group Permira is closing a Birds Eye fish fingers factory in Hull, with the loss of almost 500 jobs, after buying the brand from Unilever.

In 2004 900 jobs were axed at AA within days of a £1.75 billion takeover Permira and CVC.

Long-standing union disquiet over private equity groups boiled over earlier this year after it was disclosed that the Labour party had received hundreds of thousands of pounds from leading figures in the sector.

Amid anger from unions Tony Blair publicly defended the sector which he said brought “a lot of benefits” to the UK economy.

The sector’s trade body the British Private Equity and Venture Capital Association (BVCA) claims its members create jobs at a faster rate than other private sector companies and grow sales faster than FTSE 100 or FTSE 250 companies.

Its members currently have stakes in more than 10,000 companies, accounting for 2.8 million workers – equivalent to 19% of UK private sector employees.

The BVCA attempted to boost the image of the sector by announcing on March 1 that it was setting up a group to examine ways of improving “transparency” by drawing up a voluntary code of conduct.

And earlier this week the economic secretary to the Treasury Ed Balls announced a review of tax arrangements but he stopped short of the wholesale review of the treatment of debt within the tax system which some campaigners have been demanding.

But Mr Maloney said that the news of KKR’s Boots interest would add further fuel to the GMB campaign.

He said: “It started out that private equity would buy a company that looked to be under valued and invest in it in order to promote it, make it profitable and then walk away with a reasonable profit.

“There’s nothing wrong with that, but they have gone brazen and bold now, they are now taking household names, valuable companies and stripping assets out of them.

“They have gone beyond the investment stage to speculation.”

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