Hidden away in a fairly uninspiring stock exchange statement on Friday, the retailer said that it paid out an interim dividend to shareholders of £1bn on 6 August 2007, and then another one of £550m on 20 August 2007. That was on profits of just over £500m for the six months to September.
News of the dividend is unlikely to go down well with the unions, who spent most of the summer moaning about the ‘private equity piranhas’ lining their expensively-clad pockets at Boots’ expense.
But it does show how successfully KKR seems to have side-stepped the bloodbath in the financial markets with this deal. The debt financing package of about £8bn was arranged just before the credit crunch hit, so it was the banks that were left holding the baby when the market dried up (having failed to sell it on at a decent price at the time, they’re now expected to have another go in the new year).
What’s more, the US buyout firm has already managed to recoup a big slice of its original investment. Depending on who you believe, KKR (along with Pessina and its co-investors) put about £3-£4bn of equity into the original deal – so a £1.55bn dividend would go a long way towards repaying this.
And the total dividend for the period was about ten times that in the previous year – when it made about a tenth of the profit. So it may sound like a lot of money, but it’s not particularly disproportionate in relative terms – at least on this basis.
Still, for a heavily indebted company to be paying out such a huge dividend is controversial, to say the least. Boots’ retail arm generates plenty of cash, so servicing a buyout debt shouldn’t be too difficult – but with consumer spending apparently falling, it doesn’t want to leave its bank accounts stretched. That’s presumably why a company spokesperson was at pains to tell the press today that the money had not actually been taken out of the company.
Either way, KKR’s investors are probably not complaining. After all, the US firm has done this lots of times before – and hasn’t often ended up out of pocket.