Alliance Boots and an an offer Richard Baker couldn’t refuse

July 21, 2007

boots-directors-group.jpgRichard Baker quits as CEO of Alliance Boots after discussions with all-powerful Stefano Pessina. Although offered a new job with a generous remuneration package, he judges the role to be too toothless,and leaves the company.

I managed to extract the above happy families portrait of the Alliance Boots board before the airbrushing began. In our story today we learn why the photograph will shortly change. This version shows, left to right, Steve Duncan, Stephano Pessina, George Fairweather, Richard Baker, Scott Whewhy and Ornella Barra. Now read on …

The story so far

Cherished British Drug company Boots merges with European partner, whose wealthy owner, Stefano Pessina, becomes deputy chairman in the new company, Alliance Boots.

The amicable arrangement suggested that in any leadership transition, Mr Pessina would be a cuckoo in the nest. In short order, chairman Sir Nigel Rudd resigned. further friendly discussions were followed by a takeover by private equity firm KKR. The move was presented openly as a vehicle which would install Pessina as its main driver

KKR and Stefano Pessina had made it known that they wanted to keep the top team intact. But for all the continuing expressins of good will, the inevitable was to happen.

Thursday July 12th 2007, Richard Baker decised to accept a severance deal that would be worth some £10 million. It seems as if they made an offer for him to stay, or decline with honor. In an interview with the he says

“Stephano is a gentleman. He has been as good as his word with me every step of the way..I am confident about the future of the company ..I have looked everyone in the eye at Nottingham [corporate HQ] and told them that”

.

Another top retail executive, Scott Wheway, is also leaving, again in an amicable fashion.

Not too difficult to predict

The story has been followed in earlier posts. It struck me that in the original merger between Boots an Alliance, the new board had a majority of former Boots executives. But the Alliance side was the more profitable, and Stephano brought with him a sizable shareholding and considerable personal wealth.

It was not difficult to predict what would happen. I noted earlier this year that

If takeover is successful, I am not expecting many of actual board members to retain their positions.

And so it has come to pass. Not brutally. But Pessina has enough power to be magnanimous. Mr Baker may not have had much temptation to stay on when the alternative was a £10 million incentive to leave, with more chances of securing a new leadership role elsewhere.

Leadership lessons

I’m not sure of the leadership lessons here. Perhaps it is that self-made billionaires are not all ego-crazed narcissists. Maybe absolute power is not always accompanied by absolute ruthlessness.


Stefano Pessina: Friendly insider at Alliance Boots (update)

March 13, 2007

The friendly bid for Alliance Boots could hardly be friendlier. It is led by the company’s deputy chairman Stefano Pessina, in conjunction with private equity giant KKR. Friendly as in Cuckoo in the nest? (Updated).

Update

The Economist (March 17th 2007) examined the likely acquisition of Boots (as it described Alliance Boots). It noted the on-going debate on the merits of private-equity firms, pointing out that Boots was benefitting from effective management, and that the case for change was unconvincing.

It took its characteristic free-market stance to interpret the situation, accepting the story that Mr Pessina had been prompted to act by the sluggishness of performance post-merger. In short, Mr Pessina was not so much a cuckoo in the nest, as a rational agent responding to an entrepreneurial opportunity produced by sub-optimal performance. It added primly, that Mr Pessina might have been partly responsible in that he had failed in part of his well paid job to explain to the market its under-estimating of the value of the company …

My Earlier Post:

The leap in share price tells it all. This week the Alliance Boots pharmaceutical and health-care company was talking to itself. Part of the board considered a ‘friendly bid’ put together by the famed private equity company KKR. Another part of the board, led by its own deputy chairman Stephano Pessina, was spear heading the bid. The rest of the board faction has politely responded ‘thanks very much old friend, but do you think you could possibly find some more cash?’. The shares galloped up close to the proposed £10 level.

What’s going on?

Ambitious company insiders are increasingly aware of the potential of private equity support to mount a bid for ownership. The benefits of such a bid are obvious. The inside knowledge makes due diligence a rapid and relatively risk free process.

In this case, the historical events might almost have suggested that such a takeover was on the cards. It has been less than a year since Alliance Boots was created from the merger of health and beauty retailer Boots, and drugs wholesaler Alliance Unichem. After the merger, the new company retained a board strongly representing the somewhat larger Boots organisation, but with a curious-looking side-arm for deputy chairman Stephano Pessina.

Stephano Pessina

Although difficult to extract the information from the company’s official web-site, Stephano is a highly successful Milanese entrepreneur who in effect is the owner of Alliance Unichem, and thus, a thirty percent personal stake in Alliance Boots. He was the force behind the conversion of his family firm to an international organisation. A nuclear engineer by profession, he is believed to be disappointed at post-merger progress in the newly merged firm.

Cuckoo in the nest

The debate about private equity companies continues. Influential journalist and blogmeister Robert Peston of the BBC has been to the fore in bringing the debate to a wider audience. In simple terms, KKR is but one of a growing and influential group of financial consortia who have been developing innovative means of acquiring companies and capitalizing on their assets. (It is already in the news in the UK for part of a Consortium interested in the Sainsbury retailing organisation). Opponents of such firms portray them as asset strippers, impervious to human anguish and long-term social goals. Supporters argue that they rescue firms from flabby and ineffective management and return them to economic health. Examples of both kinds may be found. What is clear is that the ambitious entrepreneur within an organisation has a new way of seeking to achieve personal ambitions.


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