KKRs Acquisition of Alliance Boots - Case Study Example

Besides the case which would be taken up for discussions, it is necessary to take up the case of KKR's purchase of RJR Nabisco, a food products manufacturing company. After the announcement of the deal being successful, RJR's stock price shot up from $ 55 to $ 77.25, a spectacular rise by any standards (Brigham & Ehrhardt, P.1000). During early times, the guiding principles for takeover were in terms of restructuring fully developed companies, acquiring them, and later on, disposing them at good margins, when they are able to provide profitable business.

However, nowadays - these considerations are not taken into account, and what is merely important is the takeover of a larger company, preferably by a private equity, in order to utilize its assets for payment of creditors of the acquiring company. The method of experiencing acquisitions through LBO is widespread, and has given rise to private equity being termed as people who wish to liquidate the Company's production capacity, in order to pay off the post taken debts and obligations.

Alliance Boots is being seen as the first FTSE Company to be acquired by private equity company, KKR, although earlier the latter had also acquired AFR Nabisco, a prominent food products manufacturer. On March 12, 2007, Alliance Boots was contacted by New York based private equality mogul, Kohlberg Kravis Roberts & Co., (KKR) for levered buyouts (LBO) for a record sum of 11 Billion. It is seen as the biggest European LBO deal ever struck and the underwriters even agreed to lengthen the period for Investor to stake claims in it.

This move could be seen in terms of KKR's recent acquisition of the UK Retail chain, Alliance Boots, which was undertaken in conformity with the largest shareholder, Stephan Pessina on the condition that Mr. Pessina would just assume control in the newly acquired company. Modus operandi of LBOThe mode of acquisition would be in terms of identifying companies, which had high cash flows, but lacked suitable avenues for investments.

Through loans, these commercial debts would purchase majority interests in firms at higher than market rates. After this, the acquired company would have to take over the liabilities of the acquiring company, or the acquiring company would take loans by pledging the acquired company's assets etc. as security. Thus, it was possible to gain entry into very large corporations through the use of acquisition techniques. Over the years, it is seen that acquisitions now cease to have real value, since any company, however large, could be