RIL's massive cash chest to help take on PE suitors for Boots retail chain

Has already acquired online medicine seller NetMeds in India; Boots deal will help it launch NetMeds overseas, bring offline retail chain to India, say analysts

Reliance Industries, which is in the race to acquire Europe based pharmacy retailer, Boots chain for $9 billion, has a massive cash chest and financial flexibility to mount an aggressive bid for the company, say analysts. RIL has already acquired NetMeds, an online medicine seller, in India and Boots acquisition will help it to launch NetMeds overseas and bring the offline retail chain to India, say analysts.

Boots will be the first big ticket investment attempt by the Ambani company after its unsuccessful foray into the US shale gas market. Quoting unnamed sources, Bloomberg reported last week that talks are ongoing and there is no certainty Reliance will decide to pursue an approach for Boots.

A Reliance spokesperson did not comment.

Analysts said RIL has ample cash to mount an aggressive bid with a cash and liquid investments of Rs 2.4 trillion as on December 31, 2021 at a consolidated level. RIL’s financial flexibility was further supported by sizable bank lines, which usually remains unutilised to the extent of 30-50 per cent, as per Crisil, a rating firm.

“As there is no clarity that RIL’s Future’s acquisition will go through due to ongoing litigation by Amazon and banks sending Future group companies to the bankruptcy courts, RIL is looking for alternate targets for investments and Boots chain is a good bet,” said an analyst with a local brokerage.  

RIL’s subsidiary, Reliance Retail had announced to take over Future group’s businesses for Rs 24,000 crore in August 2020 but the transaction has not closed till date. RIL will be looking for alternate investment targets to utilise its cash, analysts said.

Reliance will be competing with private equity firms, Apollo Global Management and TDR Capital who are also interested in making a bid. CVC Capital and Bain Capital, had also shown interest to bid for the Boots chain after its parent Walgreens Boots Alliance decided to sell the international unit. Boots operates 2,200 stores in the UK.

“RIL will be transferring gasification undertaking to its wholly-owned subsidiary, Reliance Syngas, through a scheme of arrangement to be approved by the National Company Law Tribunal (NCLT). This will further give RIL more flexibility to mount a bid,” the analyst said. RIL would be entering into a job work arrangement with RSL, for conversion of raw material to syngas, CO2, hydrogen and the company to sell stakes to potential strategic investors in this subsidiary.

The risk in the bid will be Reliance’s track record of acquisitions overseas. The company did not recover its investments in the American shale gas sector and had to write it off.  “But since then a lot has changed with RIL reducing its debt substantially by selling stakes in Reliance Jio, a wireless telephony company to a clutch of investors like KKR, Google and Facebook and in Reliance Retail,” the analyst said, asking not to be quoted.