By  on April 23, 2007

LONDON — The bidding war for control of Alliance Boots has begun.

Shortly after private equity firm Kohlberg Kravis Roberts & Co. and Alliance Boots' executive deputy chairman Stefano Pessina received the green light from Alliance Boots' board for their joint 10.6 billion pound, or $21.25 billion at current exchange, takeover bid Friday morning, a rival consortium — comprising Terra Firma private equity company, the Wellcome Trust medical research charity and HBOS banking group — said it may trump that offer.

While the Terra Firma-led consortium said in a regulatory statement Friday there is no certainty its offer will be forthcoming, the group said it had provided Alliance Boots' board with the terms of an "indicative proposal" of 11.26 pounds, or $22.57, per share. If a deal were to go ahead, that per-share bid would be reduced to 11.15 pounds, or $22.35, because of a "break fee" Alliance Boots would be obliged to pay AB Acquisitions Ltd., the company formed by KKR and Pessina to implement the takeover transaction.

AB Acquisitions secured the backing of Alli­ance Boots directors with an offer of 10.90 pounds, or $21.85, per share.

"The formation last year of Alliance Boots created a hugely valuable business and this offer reflects that," said Sir Nigel Rudd, chairman of Alliance Boots in the KKR regulatory statement. "I am delighted that the board has been able to achieve such a good price for shareholders."

In its regulatory statement, Terra Firma urged Alliance Boots' shareholders to "take no action."

Referring to the Terra Firma consortium's approach, Alliance Boots said in a regulatory announcement it is continuing to provide high-level due diligence, including access to senior management.

"The board of Alliance Boots has made no change to its intention to recommend the offer by Kohlberg Kravis Roberts and Stefano Pessina," the firm said.

KKR and Pessina, who first indicated their interest in a takeover bid on March 9, initially put forward a potential offer of 10 pounds, or $20.04, per share.

When that was turned down by the Alliance Boots board on March 12, the consortium raised its possible offer price to 10.40 pounds, or $20.85 per share, on March 29. It eventually settled on a firm bid of 10.90 pounds, or $21.85, last Friday.

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