Private equity in Boots bid battle

By Rachel Sanderson and Eleanor Wason

LONDON (Reuters) - An 11 billion pound bid battle for Alliance Boots broke out on Friday as private equity firms backed by billionaire businessmen vie to strike Europe's biggest leveraged buyout.

U.S. buyout firm Kohlberg Kravis Roberts and Stefano Pessina, Alliance Boots' deputy chairman and biggest shareholder, said they had agreed to buy the drugs wholesaler and retailer with a firm offer of 1,090 pence a share in cash.

But only hours later buyout group Terra Firma, led by its founder Guy Hands and working with medical charity Wellcome Trust and banking group HBOS, said it had made an indicative proposal to the company's board worth 1,126 pence a share in cash.

This would fall to an actual offer of 1,115 pence a share or 10.8 billion pounds for investors, after subtracting the 106-million-pound fee it would have to pay KKR and Pessina for breaking up its agreed deal with Alliance Boots.

Alliance Boots shares surged to as high as 1,141 pence on speculation the battle had further to run. Alliance Boots and KKR were not immediately available for comment.

"There is headroom to this," said Bernstein analyst Luca Solca. He had a target price of 1,060 pence for Alliance Boots shares, but said he had calculated a theoretical maximum of up to 1,300 pence that a private equity firm might be able to pay.

Panmure Securities' Christian Koefoed-Nielsen thought KKR was in the strongest position, because it is backed by Pessina.

Alliance Boots sells medicines, beauty products and sandwiches and also runs a drug-distribution business. It was created last year from the merger of 150-year-old health and beauty retailer Boots and drugs wholesaler Alliance UniChem.