KKR books 3x on remainder of Alliance Boots

The firm will sell its 55% stake in the UK pharmacy business for £9bn in cash and shares

Kohlberg Kravis Roberts has agreed to sell its remaining stake in Alliance Boots, the UK and Ireland’s biggest pharmacy store chain, to US-based Walgreens.

The firm will sell its remaining 55 percent stake for approximately £9 billion (€11.3 billion, $15.2 billion) in cash and shares, according to a source familiar with the matter. The sale will net KKR will a 3x return.

KKR declined to comment on the transaction.

It is unclear what the firm’s total return is on Alliance Boots. In 2012, KKR sold Walgreens a 45 percent stake in the company for $6.7 billion. KKR received $1.8 billion in cash and 7 million shares of Walgreens’ common stock valued at around $200 million in that deal. As part of that transaction, Walgreens had the option to acquire the remaining 55 percent stake during a six month period two and a half years after the deal had closed.

The current transaction, which is subject regulatory approval, will fully combine Alliance Boots and Walgreens to form the first global pharmacy-led, health and wellbeing enterprise, Wallgreens said in a statement.

The transaction will result in a new entity called Wallgreens Boots Alliance. That company will have four divisions: Walgreen Co, Boots, Pharmaceutical Wholesale and International Retail which will include Alliance Healthcare, a European pharmaceutical wholesaler and Global Brands.

The full combination will establish the world’s largest pharmaceutical wholesaler and distribution network with more than 370 distribution centres delivering to more than 180,000 pharmacies, doctors, health centers and hospitals in more than 20 countries, Walgreens said.

KKR initially invested $2.45 billion in Alliance Boots in 2007. That initial investment, a partnership with the company’s executive chairman Pessina, included around $1.4 billion from KKR’s 2006 fund, and $750 million from its European Fund II. An additional $300 million was provided from KKR’s balance sheet.

As of 31 December 2013, the 2006 fund was generating a 1.4x investment multiple and a 6.8 percent net internal rate of return (IRR) according to documents from The California Public Employees’ Retirement System. KKR’s European Fund II, a 2005 vintage, was generating a 1.3x and a 4.8x net IRR as of 31 December 2013.