Alliance Boots takeover: An Italian Perspective

April 20, 2007

The Alliance Boots takeover appears inevitable and imminent. The role of Deputy Chairman Stefano Pessina has come under increasing scrutiny. We report the views of an Italian business executive.

[Friday April 20th 2000, Alliance Boots announce acceptance of the KKR / Stefano Pessina offer. other reports indicate that a second offer from Terra Firma, The Wellcome Trust, and banking group HBOS is underway. This post summarizes the exclusive ‘off the record’ comments of an Italian business executive made earlier this week. He suggests that a heady mix of personal as well as economic considerations are in play, as the Alliance Boots takeover reaches its final stages].

Generally speaking, Italians are highly emotional people whose associations are based on strong personal bonds. Business decisions can be based on personal sympathy or positive feelings in one-to-one relationships, sometimes overriding business logic. Pride, especially if related to family business which turned out to be a success, is also a key variable to consider. A lack of humility is not rare, especially for business people coming from Milan, the Italian business capital.

Stefano Pessina

He made his family business grow to the multinational Alliance Unichem. He successfully went through a series of acquisitions in Europe, where he was always driving the acquiring company. During one acquisition, he met Ornella Barra, who quickly became his most trusted ally.

The merger between Boots and Alliance Unichem ended up with the new Alliance Boots board of Directors mainly populated by formerly Boots managers. One explanation could be because Boots was large compared to Unichem. However, Unichem was far more profitable than the loss-making Boots. Even if Pessina was appointed deputy chairman with responsibility for post-merge integration, it could be argued than he felt for the first time “acquired”. This would be difficult to accept for a successful Italian manager, whose company was also more profitable than the “acquirer”.

Leveraging his influencing 15% share in Alliance Boots, strengthened by Barra’s shares as well, he is now ready for “revenge”. Private equity company KKR will support the offer financially. Of course, Pessina can leverage his position as an insider in assessments of due diligence and future company potential.

It could be also argued that Pessina has not met performance expectation for his post-merge integration role. This could be seen as deliberate, and now he can bid for the company at lower price and only later implement the significant changes, possibly with another board of directors …

Conclusion

Even if from the outside, it looks like a friendly takeover, I have the impression that internal tensions and rivalry are playing a major role. If takeover is successful, I am not expecting many of actual board members to retain their positions. This could be justified on business grounds, but I will assume also a great component of personal incompatibility …


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