LONDON (AFX) - Alliance Boots PLC, the international health and beauty group, has agreed to open its books to Stefano Pessina, its executive deputy chairman and 15 pct shareholder, and private equity group Kohlberg Kravis Roberts (KKR), after the consortium raised its takeover proposal by 4 pct to 10.40 stg a share in cash.
'The board has agreed to grant KKR and Stefano Pessina a limited period to undertake confirmatory due diligence,' said Alliance Boots, created from the merger of Boots Group and Alliance UniChem last July.
The revised Pessina/KKR proposal values the group, which trades from about 3,000 healthcare outlets and a wholesale and distribution network serving over 125,000 outlets in 14 countries, at 10.06 bln stg.
It is subject to due diligence and a recommendation from Alliance Boots' board. It includes any dividend declared or paid after today and represents a premium of 28 pct to the group's pre-bid approach price of 815 pence.
The Pessina/KKR consortium issued a statement confirming it expected to start due diligence 'shortly'. This is expected to take about three weeks after full information is made available.
The consortium, which stressed there is no certainty a formal offer will follow, said its investment rationale is predicated on long-term growth -- a statement possibly designed to placate unions increasingly agitated by the private equity industry.
'Its objective is to work with the existing management team to enhance Alliance Boots' position as a global leader in the healthcare services and beauty industries. The consortium is also committed to building upon Alliance Boots' unique position as a trusted UK brand and retail institution,' it said.
On March 12, Alliance Boots' board, led by chairman Sir Nigel Rudd, rejected Pessina/KKR's initial 10.00 stg proposal, saying it did not reflect the group's fundamental value and prospects.
Analysts noted the board has not yet said it is minded to recommend the revised proposal, probably in the hope rival suitors will be drawn out.
There is continuing speculation the group could attract rival offers, with reports linking Blackstone Group and Apax Partners, the private equity groups, and Guy Hands and his Terra Firma vehicle, with possible approaches.
However, analysts point out that Pessina's presence in the KKR consortium is crucial. He brings with him his 15 pct stake and is the driving force in Alliance Boots' wholesale strategy, along with Ornella Barra, the wholesale and commercial director and Pessina's partner of 24 years.
It is believed that Pessina has welded himself to KKR and will not work with any other potential offeror, although technically he will not be restricted from selling his shares to a higher bidder.
Richard Ratner, analyst at Seymour Pierce, had predicted Pessina/KKR would return at the 10.40 stg level and reckons an offer will go through at this price.
'The level may disappoint some, but in our view it is a very good price, as indeed 10.00 stg was, especially after the rather lacklustre [fourth quarter] trading statement [on Wednesday],' he said.
'Thus there is no point in getting annoyed at the situation, the time to have protested was when the initial merger took place. Pessina (Alliance Unichem) definitely got a much bigger slice (49.8 pct) of the cake than was deserved.'
Nick Bubb, analyst at Pali International, reckons 10.40 stg is the bare minimum Rudd could have got away with to save face.
'In the absence of any other offer we think that price will be recommended, after due diligence,' he said.
'We think that [10.40 stg] is very generous and that KKR will really struggle to generate an adequate return on that basis.'
Analysts at Numis Securities noted that Pessina knows Alliance Boots probably better than anyone and is unlikely to discover any nasty surprises when carrying out due diligence. They see a counter bid as unlikely and advised clients to take profits.
However, Sam Hart, analyst at Charles Stanley, believes it is unlikely 'this modestly higher offer' will be accepted.
'The involvement of Pessina ... means they (the Alliance Boots board) will want to be seen to be acting in the interests of all shareholders, and therefore seem unlikely to accept anything other than a knock-out bid well in excess of 10.60 stg,' he told clients.
By 2.08 pm, shares in Alliance Boots, having earlier touched 10.48 stg, were up just 3 pence at 10.30 stg -- indicating investors do not expect a higher bid. james.davey@thomson.com jdd/nes/jdd/wj COPYRIGHT Copyright AFX News Limited 2007. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited