Roll up, roll up, who wants to buy Boots, a grand old name of UK retailing with 170 years of history under its belt? Not many people, it seems. Or rather, not many at a price the seller, the US group Walgreens, had hoped to achieve.
The reported joint bid of slightly more than £5bn from Reliance Industries of India and the US private equity fund Apollo is a long way short of where the rumour-mill had suggested the winning line would lie. Advisers had been trying to talk the price into £7bn-plus territory. There’s still time for the action to heat up (the ubiquitous Issa brothers of Asda and EG petrol forecourt fame are not formally out yet) but there’s an unmistakable lack of buzz around this transaction.
While Boots’ management warbles cheerfully about a “rejuvenated store portfolio and an increasingly powerful online presence”, the rest of the world sees a long tail of tired-looking shops and a threat from online specialists attacking the high-margin end of the beauty range. The success of the No 7 beauty brand is masking a lot of longstanding problems.
The prescription of most outsiders involves heavy investment to bring the estate up to the standard of the few flagship stores (especially in smarter parts of London) that have had a full makeover. Anything is possible under new ownership, but there’s also a risk of mixed incentives under a consortium model, especially if Walgreens itself, owner since 2012, is obliged to retain an interest. Reliance’s interest may be spurred by thoughts of Asian expansion; Apollo, one assumes, would just want to be in and out within five years in normal private equity style.
At the right price, buyers should still be able to make decent money. But the contrast with the highly competitive 2007 auction for Boots, then a FTSE 100 company, is stark. As it happens, KKR and the Italian billionaire Stefano Pessina, the victors on that occasion, made splendid returns by selling to Walgreens five years later. This time around, the debate feels more like the one heard for most of the 1990s: how best to slow Boots’ decline.
AO World’s CEO too bullish with his promises
John Roberts at AO World wasn’t the only specialist online retailer who mistakenly thought lockdown trading conditions had permanently transformed the market in his favour (take a bow Tim Steiner at Ocado), but he deserves special mention for this comment in January 2021: “I believe we’ve seen 10 years of change in 10 months.”
Bullishness in the AO’s online world of fridges, freezers, TVs and laptops continued all the way into last summer. In the annual report last July, the group cooed over prospects in Germany, where its venture finally seemed to be coming good after seven years of effort. All incremental profit in Germany would be invested “to accelerate our growth” and realise a market opportunity “twice that of the UK”. The next step, supposedly, was the rest of western Europe.
That tantalising prospect can now be forgotten. The German operation is to be closed, at a cost of up to £15m. German shoppers have returned to shops. Given that AO retreated from its first foreign foray in the Netherlands in 2019, the future looks UK-only for the foreseeable future. Population densities are more helpful here, punters are more online-attuned and AO’s brand is established and acknowledged for its high standard of customer service.
One can still admire the likeable Roberts’ ambition. It’s probably only a founder-led company that would have given pan-European expansion a crack in the first place. But spare a thought for AO’s employees who were shown a tantalising prospect of their own at the height of the lockdown hoopla – a bonus scheme that, as Roberts put it, he would be “proud to tell my mum about”. Success could mean meaningful sums, like a year’s wages for warehouse workers rather than “a round of drinks”.
The plan was well intentioned. Unfortunately, the share price targets underpinning the scheme now look near-impossible to achieve. During the first year of pandemic, AO had accelerated from 60p to 400p, making 523p (the baseline) and 941p (for the serious money) look ambitious but credible over five years. With the shares now back at 71p, even the optimistic Roberts may have to concede the goals are a stretch too far.
For boardroom bonus schemes, it’s a serious no-no to rewrite targets in the middle of the game. For a shop-floor plan like this one, there would be a case for making an exception. It’s not the workers’ fault that the boss was too bullish.