Pessina banks windfall from Boots deal

Alliance Boots deputy chairman Stefano Pessina is set to land a windfall of more than £600 million if his take-private bid for the group is accepted – roughly the same amount that may be required to plug the company’s current pension deficit.

Stefano Pessina, the deputy chairman of Alliance Boots who has teamed up with Kohlberg Kravis Roberts to take the health and beauty group private, is set for a substantial windfall from the deal despite doubling his stake from 15 to 30 percent.

In a document detailing the financing behind the agreed bid, Boots said the £11.1 billion (€16.3 billion; $22.1 billion) purchase price, which equates to £11.39 per share, included an equity commitment of £3.4 billion. Like KKR, Pessina will contribute £1.02 billion, about 30 percent of this total, which he will fund by rolling over some of his existing shares in Boots.

Pessina was left with a 15 percent stake in the group after engineering the merger between Boots and Alliance Unichem last year, which would be valued at about £1.7 billion under the terms of the KKR bid. This means he will effectively be realising more than a third of his previous equity interest, generating over £600 million.

In addition, if the deal goes through the acquisition vehicle will pay Pessina and KKR a transaction fee, reimburse their expenses, and subsequently pay them an annual “monitoring fee”.

The news of Pessina’s windfall comes soon after the trustees of the Alliance Boots pension scheme estimated its current deficit at about £1 billion. John Ralfe, a former head of corporate finance at Boots, told Reuters that an immediate cash injection of at least £500 million would probably be needed to address this shortfall.

In addition to KKR and Pessina’s 60 percent, the remaining equity commitment has been covered by the supporting banks: Barclays, Bank of America, Citigroup, Deutsche Bank, JP Morgan, RBS and UniCredit, although the banks will syndicate this equity to institutional investors once the deal completes.

The banks are also providing an interim debt financing package of about £8.2 billion, plus a revolving credit facility of £820 million, which will be refinanced on completion.

The document also said the group would be actively reviewing further acquisition opportunities for Alliance Boots in Europe and emerging markets, while ploughing more money into Boots stores in its UK core market.