PremiumThe Walgreen Boots Alliance, which operates US drugstore chain Walgreens and Boots in the UK and EU, was reportedly asking for $8.8 billion, while bidders had estimated the chain’s value at around $6 billion
The decks appear to have been cleared for Mukesh Ambani's Reliance Industries and US-based Apollo Global Management’s acquisition of the UK-based pharmacy, health and beauty products retail chain Boots, after a rival consortium led by the billionaire Issa brothers – who own UK retailer Asda – and the TDR group reportedly backed out following differences over valuations.
The Walgreen Boots Alliance, which operates US drugstore chain Walgreens and Boots in the UK and EU, was reportedly asking for $8.8 billion, while bidders had estimated the chain’s value at around $6 billion.
Why Walgreens is hiving off Boots is easy to see. The US pharma chain needs the cash as it strives to pivot into the higher-margin health and wellness space. Brexit has also complicated matters for the UK-based Boots, which has a strong presence in several other EU markets, as well as in Thailand and Indonesia in Asia.
Why Ambani is pitching for Boots, however, is more difficult to see. So far, Reliance’s acquisitions have been largely focused on bolstering its existing businesses and beefing up and plugging gaps in its domestic retail portfolio as it readies to take on rivals Tatas and Adanis in the physical retail space, as well as tackling Amazon and Walmart-Flipkart in the e-commerce space.
Consider its acquisitions over the past three years. It acquired a bunch of North American shale oil and gas assets, as well as Faradion, Kanoda and Lithium Werks in the new energy space. The retail business has bought UK toy retailer Hamleys, local search provider Justdial, hyperlocal milk delivery business Milkbasket, Zivame, Kalaniketan and Portico in the fashion space, and online furniture retailer Urban Ladder, Shri Kannan Departmental Store, Jaisuryas.
While Hamleys is an outlier, the other buys tie in with Reliance’s plans to beef up its retail network by adding smaller stores, as well as technology providers for this space, which explains its buy of Fynd, which helps small retailers go online. Its 25.8% stake in Dunzo will help link delivery as well as give it a foot in the emerging fast commerce space.
Reliance’s Netmeds buy too, appears to be a bid to make sure it is in the fray with rival Tata Group, which has acquired online pharma retailer 1mg and health and wellness chain Curefit.
Boots doesn’t fit this pattern of buys to bolster domestic businesses. It is a High Street retailer with a chain of 2,200 stores, struggling with rising costs in traditional High Street retail as well as falling footfalls. While there are some synergies with Reliance’s domestic foray into online pharma retail, Boots will offer other challenges to Reliance, not the least of them being cultural differences and operating an international consumer-facing business that is well outside its comfort zone of energy and infrastructure. Even Walgreens, which grew into a pharmacy behemoth through mergers and acquisitions of chains that were themselves created through M&As, integrating the 173-year-old Boots – it opened its thousandth store as far back as 1933 – was a tough challenge. How Reliance absorbs Boots will be a test case for whether Reliance emerges as a true core sector-to-consumers conglomerate. Boots' bid marks a new direction in Reliance’s acquisition spree. It’ll be a massive boost to retail for RIL, but equally a test of management skills, and cultures.