MUMBAI, April 21 (Reuters Breakingviews) – It’s a dubious mark of Mukesh Ambani’s arrival in the big leagues: the Indian tycoon’s Reliance Industries (RELI.NS) continues to emerge as a talked-about buyer for many big transactions on the block. The $230 billion oil-refining retail conglomerate was recently linked to T-Mobile Netherlands, telecoms operator BT (BT.L) and UK pharmacy chain Walgreens Boots Alliance (WBA.O). The talk smacks less of real interest and more of investment bankers stoking the M&A auction.
Negotiators are trying to fill the void left by Qatari and Saudi sovereign wealth funds and Chinese private buyers like HNA and Fosun. Over the past decade, they have recovered European and American trophy assets and struggling businesses. These included Cirque du Soleil, resort operator Club Med, upscale British department store Harrods and stakes in Deutsche Bank (DBKGn.DE) and Hilton Worldwide (HLT.N). But those buyers are disappearing from the headlines as sovereign wealth funds get savvier and President Xi Jinping puts China’s private conglomerates on a leash.
Reliance’s overseas acquisition record is modest. He bought a few iconic British companies for token sums – Hamleys toy store and Stoke Park country club – and a host of small green energy deals. The latter, however, like Sunday’s purchase of solar cell production equipment from China’s Suzhou Maxwell (300751.SZ), needs to acquire technology to pursue its domestic ambitions.
There are solid reasons for Ambani to focus on India. Reliance’s retail sales grew at a compound annual rate of 56% in the five years prior to the pandemic. If Walgreens’ UK franchise were to grow at the same rate as the country’s retail sector, it could generate 3%. Suppose Reliance paid $9 billion for the Boots business. Tax the $730 million in adjusted operating profit estimated for 2022, by Cowen, at Britain’s 25% rate, and the investment could yield a paltry 6% return on a weighted average cost of the capital of 10% for drug retailers.
It also makes no sense to buy it to import to India. The country’s healthcare market is ripe for a large chain store, but a massive acquisition isn’t necessary: for its convenience store rollout, Reliance has adopted Seven&i’s 7-Eleven model (3382. T) through a franchise agreement.
Ambani may be looking at businesses for sale out of professional curiosity and to learn. And he may make a big overseas purchase at some point. But salespeople — and advisers — hoping to raise dumb money will likely have to fish elsewhere.
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(The author is a Reuters Breakingviews columnist. The views expressed are her own.)
– India’s Reliance Industries is considering a bid for the Boots business of UK-based drugs retailer Walgreens Boots Alliance, Bloomberg News reported on April 13, citing people familiar with the matter.
– Boots is being sold in an auction process led by Goldman Sachs and could be valued at up to 7 billion pounds ($9.1 billion) in a sale, according to the report.
– The Boots business spans 2,200 stores in the UK, including pharmacies, health and beauty stores, according to the chain’s website.
– Walgreens said in January it was conducting a strategic review of the Boots business as the second-largest U.S. drugstore chain renews its focus on domestic healthcare.
– Other Boots contenders include TDR Capital, which owns supermarket chain Asda; a consortium of CVC Capital Partners and Bain Capital; and the American investment company Apollo.
Editing by Antony Currie and Katrina Hamlin
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