Merrill jumps ship as KKR mulls second Boots bid

Alliance Boots, the UK retail chain that recently rejected a £10 billion buyout offer from Kohlberg Kravis Roberts, has lost one of its brokers to the bidding team, fuelling speculation that an improved offer may be forthcoming.

Merrill Lynch has quit as broker to UK health and beauty chain Alliance Boots to advise Kohlberg Kravis Roberts and its partner Stefano Pessina, sparking further rumours that the pair will return with an improved bid for the retailer.

Merrill has a long-standing relationship with Pessina, the Alliance Boots deputy chairman who is working with KKR on the potential £10 billion deal, having also advised him when Alliance Unichem merged with Boots last year.

The bank’s sudden defection to the bid team, which had an indicative £10-per-share offer rejected by the board last week, suggests that the group is likely to return with a higher offer rather than withdraw from the bidding. Merrill is also expected to provide staple financing for the bid, according to a report in the London-based Telegraph newspaper.

After a board meeting on Monday, Alliance Boots issued a statement saying that it was rejecting KKR’s potential offer on the grounds that it did not “reflect the fundamental value of the company or the attractive prospects, opportunities and synergies available to Alliance Boots following the very recent completion of its merger”. This means KKR would have to increase its offer before Alliance Boots would allow it to conduct due diligence.

Merrill will now advise KKR and Pessina alongside JP Morgan and Italian bank UniCredit. Alliance Boots, which is being advised by Goldman Sachs, will retain UBS and Credit Suisse as its brokers.

Investors also seem optimistic about the prospect of another bid. At 14:08 GMT, Boots shares were trading at 1016.50 pence, just below yesterday’s closing price of 1017.50 pence and well above KKR’s original offer price.