India’s Reliance is miscast as M&A stalking horse

Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company's annual general meeting in Mumbai
Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company's annual general meeting in Mumbai, India July 5, 2018. REUTERS/Francis Mascarenhas/File Photo - RC2R2T9K1BAB

MUMBAI, April 21 (Reuters Breakingviews) - It’s a dubious mark of Mukesh Ambani’s arrival in the big league: The Indian tycoon’s Reliance Industries (RELI.NS) keeps popping up as a mooted buyer for plenty of large deals on the block. The $230 billion retailing-to-oil-refining conglomerate has recently been linked with T-Mobile Netherlands, telecom operator BT (BT.L), and Walgreens Boots Alliance’s (WBA.O) UK pharmacy chain read more . The talk smacks less of real interest and more of investment bankers stirring up M&A auctions.

Dealmakers are trying to fill a void left by Qatari and Saudi sovereign funds and private Chinese buyers like HNA and Fosun. Over the past decade they hoovered up European and U.S. trophy assets and ailing companies. 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 these buyers are fading from the headlines as sovereign funds become shrewder and President Xi Jinping put private Chinese conglomerates on a short leash.

Reliance’s overseas acquisition record is modest. It bought a couple of iconic UK businesses for token sums - toy store Hamleys and country club Stoke Park - and a flurry of small green-energy deals. The latter, though, like Sunday’s purchase of solar cell production equipment from China’s Suzhou Maxwell (300751.SZ), are to acquire technology to further its domestic ambitions.

There are solid reasons for Ambani to focus on India. Reliance’s retail top line expanded at an annual compound rate of 56% in the five years before the pandemic. If Walgreens’ UK franchise were to grow in line with the country’s retail sector it might deliver 3%. Suppose Reliance paid $9 billion for the Boots enterprise. Tax the $730 million of estimated 2022 adjusted operating profit, per Cowen, at Britain’s 25% rate, and the investment might earn a miserly 6% return compared to a 10% weighted average cost of capital for drug retailers.

It makes no sense to buy it to import into India, either. The country’s healthcare market is ripe for a big chain store, but a chunky acquisition isn’t necessary: For its convenience stores rollout, Reliance adopted Seven & i’s (3382.T) 7-Eleven model through a franchise agreement.

Ambani may be taking a peek at up-for-sale companies out of professional curiosity and a chance to learn. And he may make a big foreign purchase at some point. But sellers – and advisers – hoping to reel in some dumb money will probably need to fish elsewhere.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)


- India's Reliance Industries is exploring a bid for drug retailer Walgreens Boots Alliance's UK-based Boots business, Bloomberg News reported on April 13, citing people familiar with the matter.

- Boots is being sold as part of an auction process led by Goldman Sachs and could be valued at up to 7 billion pounds ($9.1 billion) in a sale, the report said.

- The Boots business spans across 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. pharmacy chain renews its focus on domestic healthcare.

- Other suitors for Boots include TDR Capital, which owns supermarket chain Asda; a consortium of CVC Capital Partners and Bain Capital; and U.S. investment firm Apollo.

Editing by Antony Currie and Katrina Hamlin

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