(Alliance News) - The UK's two big remaining listed supermarket chains, Tesco PLC and J Sainsbury PLC, would take a close look at Boots, were the UK high-street stalwart put up for sale, brokers Shore Capital said in an analyst note on Thursday.
Sky News reported last week that the US's Walgreens Boots Alliance Inc has picked investment bank Goldman Sachs Group Inc to advise it on a review of options for its Boots UK pharmacy business, including a potential sale.
Citing to City sources, Sky said the process is merely exploratory and may not lead to a disposal by Walgreens. However, included in the options is a spin-off into a separately listed company.
In response, Walgreens issued a statement to Sky News that said: "Walgreens Boots Alliance does not comment on market speculation and Boots is an important part of the group. However, it is accurate that WBA announced a renewed set of priorities and strategic direction for the group in October, which includes a more pointed focus on North America and on healthcare."
Shore commented that, while it remains to be seen whether Boots will be put up for sale, "we sense that this is no smoke without fire".
If a US bank is mandated to sell Boots, Sainsbury's and Tesco would take a good look, Shore said, noting that both Sainsbury's Chief Executive Officer Simon Roberts and Tesco CEO Ken Murphy are former Boots employees.
According to the Boots website, Roberts and Murphy were joint chief operating officers for the UK & Ireland, appointed to the roles in 2011.
Besides the personal connection, Shore said an acquisition of Boots by either Tesco or Sainsbury's would allow for cost synergies that a spin-out or financial buyer couldn't match. Such synergies could be worth as much as 3% of sales or more, Shore said.
"Boots is a brand among the most trusted in the UK despite years of under-investment in its estate," the broker said.
With the Covid-19 pandemic, the pharmacy sector in the UK is being considered for more involvement in the distribution of healthcare, in order to take pressure off the National Health Service. "Hence, Boots core proposition could be finding a better relevance in the future," Shore said.
By Tom Waite; thomaslwaite@alliancenews.com
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