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Terra Firma ditches plans to buy Boots stake

US buyout firm Kohlberg Kravis Roberts was left seeking new equity partners for its £11 billion buyout of Alliance Boots, after UK buyout firm Terra Firma was forced to withdraw its plan to take an opportunistic £250 million stake.

Guy Hands has dropped plans to take an opportunistic £250 million ($508 million, €369 million) equity stake in the £11 billion buyout of Alliance Boots, leaving an old acquaintance to find equity partners elsewhere.

Hands’ buyout firm Terra Firma lost out to Kohlberg Kravis Roberts in the battle for the UK health and beauty chain. However, Hands suggested to old acquaintance Dominic Murphy, the KKR partner leading the deal, that his firm could still invest in the equity portion of the deal.

A banking source said: “They didn’t meet over it. But Hands got in touch saying he could bring ideas to the party, which has a perverse sort of logic.”

An investor close to Terra Firma said: “Guy knows Dominic Murphy from when Murphy was at Cinven, where they worked together on a bid, so he approached him with an offer to invest £250 million.”

The plan initially met with approval from Terra Firma’s investors, according to the source. “Everyone thought it was a clever idea,” he said. However, ultimately they would prefer to invest directly instead, forcing Hands to withdraw his offer – although the source said he nonetheless provided them with his own due diligence to inform their decision.

Hands’ withdrawal means JP Morgan – the bank trying to syndicate the £1.3 billion equity bridge it provided to help KKR close the deal – will now need to sell more of the equity than it had expected.

A KKR spokesman said Hands had expressed interest that he wasn’t able to follow through, but stressed that there was plenty of demand for the shares generally.

Terra Firma and KKR had similar underlying assumptions about the company when they were chasing the deal, according to a banking source, although the UK firm had more aggressive growth plans for the retail arm, while KKR was more focused on the drug distribution side of the business. This is the side of the business developed by KKR’s bid partner Stefano Pessina prior to Boots’ merger with Alliance Unichem last year.

Pessina’s position within Alliance Boots was strengthened this week as he assumed the role of executive chairman – at the same time as two senior managers from the retail side left the company. Richard Baker, the chief executive, and Scott Wheway, managing director of the the retail side, both decided to leave the company, despite being offered roles in the newly private company. Pessina will not appoint another chief executive following Baker’s departure.