Mark Kleinman: Boots’ dealmaker tries to formulate new potion
Mark Kleinman is Sky News’ City Editor and is the man who gets the Square Mile talking in his weekly CityAM column. This week, he tackles buyouts at Boots, big bonuses at Natwest and Reeves’ China charm offensive
Boots’ octogenarian dealmaker tries to formulate new potion
If life begins at 80, then Stefano Pessina, the octogenarian pharmaceuticals chief, has a busy adolescence ahead of him.
Not for the first time, the Italian veteran is involved in talks about a major transaction that could determine the future of Boots, Britain’s biggest high street pharmacy chain.
A billionaire he may be, but it has not been a happy recent journey for Pessina and his partner, Ornella Barra, who have both occupied significant roles at the top of Walgreens Boots Alliance for more than a decade.
At one point, they were contemplating taking part in what could have been the world’s biggest-ever leveraged buyout – a roughly $70bn take-private of WBA. The scale of the company’s decline over just five years has been staggering, its shares off by about 90 per cent from the peak and now weighed down by $10bn of debt.
At little more than $7bn, the company’s market capitalisation prior to news of Sycamore’s interest (which had been circulating for weeks) being reported by the Wall Street Journal was not much different to the price the company had hoped to yield for Boots during an auction two years ago.
Now, Sycamore Partners, the private equity firm, is circling. A prolific investor in tired, challenged retail assets, it is preparing to launch a formal offer for the company next month. It is, as I reported last week, lining up lenders including Bank of America, JP Morgan and Wells Fargo to finance a deal.
Pessina, who owns about 17 per cent of the company, is said to be interested in taking control of the Boots chain, with Sycamore likely to be less interested in retaining control of WBA’s assets outside the US.
The company has been slow to respond to structural shifts in healthcare delivery, slow to close underperforming stores and slow to respond to growth-enhancing M&A opportunities.
Boots’ performance has been a rare positive for the group in recent quarters. Sycamore is said to have little interest in retaining it. Pessina’s uncanny dealmaking knack is about to be put to the test once more.
Bonus comes gift-wrapped for NatWest chief
That’s a nice Christmas bonus. NatWest Group, the soon-to-be-former taxpayer-backed bank, is consulting with investors about an overhaul of its executive remuneration policy. For Paul Thwaite, who replaced Dame Alison Rose in the aftermath of the debanking row with Nigel Farage, the revamp is timely.
As I revealed on Sky News last weekend, NatWest’s proposals involve substantially increasing the potential quantum of stock available to Mr Thwaite and senior colleagues, but with a range of stretching performance targets required to trigger payouts at the top end.
Investors appear to be broadly supportive of the revised blueprint. Thwaite inherited the reins at NatWest when it was 38%-owned by UK taxpayers; by the spring, I would expect that figure to be close to zero, especially if UK Government Investments turbocharges its drip-feed trading plan with an institutional placing.
It’s appropriate, therefore, that the bank’s board, chaired by Rick Haythornthwaite, is normalising its pay structure to place it on a level playing field with its competitors.
It’s unclear whether Thwaite’s base salary will be increased, although NatWest’s remco chair has told investors he will be paid appropriately for a FTSE-50 boss.
The overhaul makes sense in the context of UK banking regulators’ decision to relax rules imposed after the financial crisis, which forced executives to wait up to seven years to receive deferred share awards.
Watchdogs’ move to soften the framework for industry pay is a reflection of the political pressure they are under to improve the City’s competitiveness.
Lord Spencer, the ICAP founder, would have them go further. He believes company bosses should be paid like “top-rate footballers”, he told the FT last week. “Aren’t they already?,” was the derisory response of one top investor.
Royal row renders Reeves’ China rendezvous a hazard
New year, new you. Data showing Britain’s economy unexpectedly shrank means that Rachel Reeves will certainly be hoping so.
As the fallout from her maiden Budget drags on – I understand businesses in a number of other sectors are also contemplating writing to her to warn of its potential impact on them – she now needs to contend with the first truly complex geopolitical test of her chancellorship.
I understand that Reeves will travel to China on January 12 and 13 for the first UK-China Economic and Financial Dialogue in more than five years.
What was intended to be an annual event was sidelined by a combination of COVID and a frostier relationship between the two countries.
The chancellor is expected to be accompanied by a modestly sized delegation of industry figures, led by Mark Tucker, the HSBC chairman. A number of business partnerships are likely to be announced during the two-day summit, sources said, with a narrower focus on financial services than might otherwise be expected.
Her trip has, however, just been rendered exponentially more difficult by the spying row involving Prince Andrew and his Chinese connections.
Reeves has been clear that she favours a “hard-headed, economic realist” approach to Britain’s China relationship. The latest royal controversy means she is about to find out how difficult that pragmatism will prove to be.