Walgreens lines up Goldman Sachs to explore options for UK’s Boots chain

Walgreens Boots Alliance is lining up advisers to explore options including the sale of Boots, five years after it took full ownership of the UK retail pharmacy chain.

Goldman Sachs will be asked to examine the hiving off of the Boots chain, which was founded in Nottingham by a Methodist family in 1849, potentially via a sale or separate listing.

Private equity groups have been buyers of UK retail assets this year, with TDR Capital involved in the acquisition of supermarket chain Asda in February and Clayton, Dubilier and Rice fighting off competition from SoftBank-backed Fortress to take control of Wm Morrison, another grocer, in October.

Boots was a UK-listed company until 2007, when it was taken private by Italian pharmacy magnate Stefano Pessina and private equity group KKR, in what was then the UK’s largest leveraged buyout.

Walgreens then acquired the company in two stages, completing the process in 2016, with Pessina becoming chief executive of the enlarged group.

At the start of this year Walgreens appointed Roz Brewer as chief executive, with Pessina becoming executive chair. Brewer has signalled a sharper focus on US healthcare and the group has already sold its distribution business to Amerisource Bergen.

Chicago-based Walgreens said it was “accurate” that it had “announced a renewed set of priorities and strategic direction [in] October, which includes a more pointed focus on North America and on healthcare”. 

But it added that it did “not comment on market speculation” and that Boots was “an important part of the group”.

Sky News first reported that Goldman had been lined up.

Some investors have questioned the synergy between Boots and its US parent, given that the stores are for the most part on different continents and do not have a similar product mix.

Critics have also said that Boots lost its distinctive character under private equity and US ownership, with its stores becoming increasingly scruffy and understaffed.

Neil Saunders at GlobalData said the Walgreens merger “did Boots very few favours” and that it had “suffered from a lack of investment and focus in areas like stores and services”.

“Walgreens brought Boots down to its level, which was completely the wrong outcome.”

But Boots has one of the UK’s leading retail loyalty schemes with more than 14m active members and a highly defensive pharmacy business that dispenses up to 2,000 prescriptions each week on behalf of the UK’s state health service.

Sebastian James, Boots managing director since 2018, has implemented a programme to close about 200 surplus stores, boosted its online offering and invested heavily in new-format beauty halls designed to take on department stores.

Boots also suffered during the UK’s Covid-related lockdowns, with many of its pharmacies remaining open to dispense prescriptions but with retail activity — usually about three-fifths of sales — declining.

In the year to August 2020, it made an operating loss of £245m against a profit of £198m the year before. It was also attacked by some landlords over what they considered an aggressive stance on renegotiating rents.