Boots sees a third shaved off its value over two years

By SIMON DUKE FOR MAILONLINE
Updated: 17:44 EST, 1 June 2009

Alliance Boots has lost over a third of its value since the pharmacy company was taken private in a £12billion deal two years ago, one of its owners has revealed.

US buy-out giant Kohlberg Kravis Roberts admitted that after stripping out debts its stake in the iconic chemists' chain is now worth just £850million.

When KKR spearheaded the takeover - still Europe's largest ever private equity deal - its 50pc stake in Alliance Boots was worth over £1.3billion.

The hefty writedown highlights the collapsing value of many of the debt-laden deals struck at the height of the private equity takeover frenzy.

KKR's stake in Alliance boots has dropped to £850million

KKR and its partner, Italian billionaire Stefano Pessina, saddled Alliance Boots with over £9billion of debt after making its move in May 2007 - just months before the credit crisis erupted.

Private equity baron Guy Hands bought EMI at the same time, but has since written off half of his £2billion investment in the music giant.

The slump in the value of Alliance Boots and a raft of other debt-backed deals pushed KKR into a £740million loss last year - its first drop into the red in at least five years.

KKR, which made a £500m profit in 2007, joins a growing list of private equity firms to have suffered a dramatic reversal of fortune last year.

The Carlyle Group last week warned that the buyout industry is facing a highly uncertain future following a 'humbling' 2008.

Buy-out groups used cheap loans during the credit boom to fund a slew of debt-laden takeovers. But since the credit crunch struck borrowing costs have risen sharply, putting many possible deals out of their reach.

At the same time the meltdown on global stock markets over the past two years has made it more difficult for the groups to crystallise profits on their investments.

After devouring over £840billion of takeovers during 2006 and 2007, the private equity industry spent a mere £133billion around the world last year.

Notwithstanding its 2008 loss, KKR yesterday signalled that it has £9.5billion in firepower to spend on new deals - including £3.8billion in Europe. Alliance Boots appears to have weathered the retail downturn in a healthier state than many of its High Street rivals.

It swung back into a pretax profit of £13million in the 12 months to the end of March, compared to a £64million loss the previous year.