Boots takeover 'could lead to financial rape'

The likely private equity takeover of Alliance Boots will probably lead to “opportunistic financial rape”, a retail expert has said.

Richard Perks, director of retail research at research company Mintel, said he believed both bids would involve some form of asset-stripping and they could spell massive job losses to cut costs, as well as possible price rises.

He said: “An asset-stripping bid can only be bad for Boots. Asset stripping is opportunistic financial rape but it really depends on how far they want to go.

“The worst-case scenario is they cut costs by sacking people and curbing expenditure on store improvements and so on, to get an immediate profit.

“Eighteen months down the line, they will float it on the stock exchange and take the money and run.”

Paul Maloney, senior organiser at the GMB union, believes private equity involvement spells “danger all the way” for Alliance Boots, as it would saddle it with debt.

“We’ve identified 131 stores nationally that have potential for closure under private equity,” he said.

“Once they’ve closed there will be job losses and reduced services to the customer”.

He said this was particularly concerning in the case of Boots, because it has a major contract with the NHS for medical supplies.

To prevent such closures, the GMB union has written to Secretary of State for Health Patricia Hewitt, calling on her to look into the financing of the deal.

However Sam Hart, an analyst at Charles Stanley stockbrokers, does not believe a private equity takeover would have so much of an effect on customers or competitors of Boots.

“It’s very difficult to speculate, but my gut instinct is that things will continue along the same lines, particularly if Pessina’s bid proceeds.

“As deputy executive chairman of Alliance Boots he built up the wholesale part of the business. If he succeeds I’d expect the strategy to be very much the same.”

Richard Ratner, a retail analyst at investment bank and stockbrokers Seymour Pierce, also thinks things will be “no different” for the customer.

He said: “There may be a tightening of one or two things in terms of efficiency, but no difference in terms of customer service or indeed job cuts.

“They have to make the business profitable and that depends on the customer.”

However, he did point out there may be price pressure on Boots from its competitors.

“The supermarket operations will say it’s actually vulnerable and might bring price pressure on it, but unless they are very powerful they are actually putting pressure on themselves as well.”

Mr Perks suggested Boots’ competitors could benefit if the company suffers from the takeover.

“If you weaken Boots then the beneficiaries are going to be Superdrug and the supermarket giants,” he said.

“The firm could also put prices up to boost profitability. It will take consumers a while to realise but sales will suffer eventually.”