Comment: Questions remain over Walgreens’ bold move

GOOD timing for Alliance Boots’ bullish executive chairman, Stefano Pessina, and even better for KKR, the US-based private equity company that with Pessina undertook Europe’s largest ever leveraged buy-out at the top of the market in 2007.

Instead of facing stiff refinancing terms on Alliance Boot’s estimated £7 billion debt in 2014, this will reportedly be taken on by its new owner, Walgreens, after the US firm bought a 45 per cent stake in the pharmacy chain for $6.7bn (£4.3bn).

The analysts have even suggested that KKR will make a 2.2 per cent to 2.7 per cent return on its investment. Which, considering most had predicted this bubble-era buyout could only end in tears, is not a bad result, even if some of its payback is in shares – about $140 million worth.

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Walgreens also has a softer option to buy the rest of the shares for $4.9bn at a later date. Meanwhile, Pessina also gets back the £1.2bn he invested in the company, albeit paid mostly in Walgreens shares.

It could have been so much worse for Pessina and KKR. At the height of the credit crisis, traders had marked down Alliance Boots debt to 60p in the pound, although this discount eventually narrowed.

But what is US-based Walgreens going to do with its new toy? For investors, there should be some ponderous questions about why the firm wants to take on more debt and such a big chunk of assets exposed to frail European consumer markets now. Sure, Alliance Boots looks good on paper, having increased profits by 88 per cent since the buy-out, but there aren’t many Americans who think doing business in Europe is a great idea.

At the end of December, Walgreens already had net debt of $6.2bn, though its debt-to-equity ratio is low.

But perhaps the deal paints it as a big “can-do” company with an expansionist ambition not seen since Sam Walton founded Walmart, or Asa Candler incorporated the Coca-Cola Company in 1892. However, sceptics should keep a wary eye on promises that “combined synergies” would be worth between $100m and $150m in the first year and $1bn by 2016.

And compare the difference – KKR’s share price rose 5.1 per cent on the news; Walgreens’ fell 6.1 per cent. There is some explaining yet to do.

Nomura shareholders make their voices heard

The shareholder spring seen in the UK hit Japan in the early hours of this morning, although it seems some aspects of how to keep boards accountable have been “lost in translation”.

Shareholders in investment bank Nomura, Japan’s largest brokerage, are clearly revolting. But what exactly they are incensed about is unclear.

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At its AGM in Tokyo this morning, there were the recognisable cavils about executive pay. But the notice sent to shareholders ahead of the meeting featured a number of proposals ranging from the angry to the positively delirious.

One proposal demands that the tradition of giving “three banzai cheers” at the AGM be abolished as “the venue is small and there are many shareholders with strong armpit odour”.

Another shareholder proposal wants to see the directors be given an inscrutable new title “crystal role” because it was a more “slipshod name”.

But the most intriguing has to be the suggestion that all toilets at the firm should be in the Japanese-style that requires the user to “hunker down”.

The rationale is that this will toughen the “loins and legs” of employees at a time when the bank has suffered a depressed share price and diluting share issues.

The board merely said it was “opposed to this proposal”, as well as any of those that have been proposed by shareholders in a similar vein.

Shareholder meetings of large company AGMs anywhere in the world are sometimes dull, while others seem more like a posh care-in-the-community service filled with people with unusual demands for the board.

But Nomura has not had its own troubles to seek, having recently admitted for the first time that employees had leaked confidential information on public share offerings in 2010.

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As a result, the bank has been left out in the cold as an underwriter in the Japanese government’s sale of its stake in Japan Tobacco.

But the effects of the Olympus scandal seems to have loosened the stays of traditional Japanese corporate culture.