Boots takeover fails as buyers struggle to secure £3bn in financing amid volatile UK government debt markets
Boots’ proposed sale is on the rocks amid concerns over how a deal will be financed.
The auction for the High Street drugstore has been going on for six months, but the process is getting more complicated as banks try to find a way to fund the multi-billion-pound transaction.
The frontrunner to buy Boots – which has 2,200 stores in the UK – is a consortium made up of India’s Reliance Industries and US private equity giant Apollo.
The auction for Boots has been going on for seven months, but the process has become increasingly tricky as banks try to find a way to fund the multi-billion-pound transaction
The consortium has set up four banks, including Bank of America, to help fund the £5bn acquisition.
For the deal to succeed, Reliance and Apollo must secure £3 billion in debt, but many are skeptical.
A major stumbling block is the volatility of UK government debt markets, as the war in Ukraine, rising inflation and rising interest rates have combined to drive up borrowing costs.
These types of deals are financed by short-term bank loans that are then refinanced in the bond market.
But the banks can’t sell the loans to their customers – especially asset managers and pension funds in the Square Mile.
A bond trader at a leading London asset manager said: ‘In a deal of this magnitude, the banks will come to us and say, ‘Are you in?’
‘In good times we bite the bullet, because Boots is an established High Street brand.
“But not right now. Last year we had Asda and Morrisons, two debt-fueled deals that already look shaky and now the banks want us back in the game.
“I don’t see this getting off the ground. Now is not the time to go into debt in pounds sterling.’
The other major stumbling block is the bleak outlook for the economy.
As a result, debt buyers are questioning whether a deal to buy Boots – owned by US giant Walgreens Boots Alliance – will pay off as consumer spending is expected to plummet amid a recession later this year.