Pessina's Promise

Italian billionaire Stefano Pessina followed Alliance's merger with Boots by taking over the whole group in a bold PE-funded £11bn deal. Can the proprietor of Alliance Boots - now a private firm - breathe new life into this 'old faithful' of British high street retailing? Profile by Chris Blackhurst.

Last Updated: 09 Oct 2013

Tucked away behind the Boots on London's Oxford Street is the HQ of Alliance Boots, the recently created pharmaceutical and healthcare giant. There's a small door next to the store. Blink and you miss it. I've been here before, to meet Sir Nigel Rudd, Boots chairman at the time, for MT. Now I'm seeing Stefano Pessina, the company's new boss.

In July 2006, Pessina had merged his Alliance UniChem concern with Boots, then in April 2007 launched a cheeky £11bn takeover of the whole lot. It was Europe's biggest private equity deal and he was backed by Kohlberg Kravis Roberts of the US. Since then, both Rudd and Boots' CEO Richard Baker have gone, the newly named Alliance Boots has left the publicly quoted arena and Pessina, 66, is master of all he surveys.

The contrast between the two could not be greater. Rudd is all bustle and noise and his voice is loud. Things seem to happen around him. His life is an open book - all chat about his latest golf game or shooting escapade. I've been waiting a few minutes and Pessina slips quietly into the room. He has been called the 'silver fox', presumably a reference to his animal stealth as well as his head of silver hair.

He's Italian, a billionaire, comfortably among the 500 richest people in the world, according to Forbes magazine. And while his estranged wife, Barbara, lives in Milan, where she brought up their two children, Pessina resides in Monte Carlo with his long-time partner and business colleague Ornella Barra. She is 12 years his junior and a director of the holding company.

Pessina has the air of a university professor rather than one of the most ambitious business-people in the world. He's dressed smartly, in a conservative Italian style. There's no trace of native exuberance or flamboyance. He's a little overweight but he's not 'fat', as Barbara called him in a newspaper.

He speaks in a soft voice in good English, with a measured, unfazed delivery, and he has mastered the art of the theatrical pause. His humour is dry. There's no doubting his intelligence, or his quizzical view of Britain and its media. He went to university in Milan and studied to be a nuclear engineer. 'By the time I had qualified, the sentiment had shifted,' he says, 'nuclear energy wasn't popular.' So he quit academia for AC Nielsen, the marketing information company.

Then he joined his family's wholesale drugs business, Alleanza Salute Italia. Pessina took it from an Italian concern to a Europe-wide empire, making a series of acquisitions in France, Greece, Portugal and Spain that turned Alliance Sante, as his group was called, into one of Europe's biggest pharmaceuticals distributors.

'In a very short period of time I bought a lot of businesses,' he recalls, 'in central Italy, northern Italy, throughout the country. The pivotal moment when I changed the dimension of my business was when I decided to go to France. I found I liked the French system very much and I was able to put together many different companies there. France is still our largest wholesaling business - we do £4bn a year there.'

While he was growing Alliance, another academic, the glamorous Ornella Barra, was running her own Italian drugs supplier. In 1986, Pessina bought her out. He made her managing director of the combined group and they've been together as a couple and colleagues ever since.

In 1997, he merged the company with UniChem in Britain to form Alliance UniChem. He became deputy chairman - he wanted to stay out of the limelight - even though he owned 30% of the group. Barra joined the board in charge of southern Europe.

Alliance UniChem was listed on the FTSE but it wasn't like other large publicly quoted groups. There was the delicate matter of Barra's board position and her relationship with the boss. Then there was his personal holding - the largest by value of any UK-quoted company director, it gave him enormous internal power. Analysts made the unfavourable comparison with Sir Ken Morrison, who also grew his company but retained control through a chunky shareholding.

In mid-2005, Pessina wooed Rudd and Baker aboard his yacht in the Mediterranean. Merger talks had been going on for months but this was the clinching phase. At the end came an agreement to create Alliance Boots, a £7bn healthcare and pharmacy giant. Pessina was again deputy chairman, yet he had 15% of the shares. 'We had some lovely lunches ... and dinners' was his typically unrevealing comment on what had occurred.

But only seven months after the merger in 2006 he wanted the lot. The City sensed indecent haste, suspecting he'd spotted something that was under-utilised and could be exploited. Rudd huffed and puffed but there was little he could do except extract more money and exit with personal credit.

When I suggest Pessina has moved up a gear just as most of his contemporaries are slowing down, he smiles. 'I'm an entrepreneur. I'm passionate about what I do. I spent a substantial part of my life building Alliance Sante, then Alliance UniChem and now Alliance Boots.' But he resents the notion that he's an opportunist. 'The two companies were really made to merge. They're complementary to each other.

'You know,' he adds, 'my interest in Boots is something I've had for five, six, seven years. I remember in 2000-01 I approached Boots to see if they wanted to merge - so it wasn't exactly something that came out of the blue. It was a logical move - entirely in keeping with the strategy of Alliance UniChem.'

It's not clear that Pessina appreciates how the British view Boots - as one of their staple, almost public institutions. 'It's true, there were different cultures at the two companies,' he admits. 'Boots was such a loved brand, such an iconic company in the UK that everything it did was immediately in the newspapers and analysts were crawling over it. Its freedom to move was limited. But to do anything meaningful in business, you have to look at the long term, not the short term. So when I had the opportunity to change that situation I seized it. I'm an entrepreneur. That's what I do.'

Pessina insists he did not orchestrate the takeover himself. 'I didn't go to seek out KKR - they came to see me. I wasn't sure if I wanted to meet them, so I sent my lawyer. When he said they're interested in the long term, not the short term, I said: "OK, I will meet with them." I did not shop around for a deal.'

He agreed to see KKR. 'I can remember the day - Saturday, 1 February, in Paris. I met them in a hotel. By the end of the day I was convinced they would be a good partner for me.' Four weeks later, all the details were in place.

Despite his calculated approach, patience is not one of his virtues. 'I want to pursue the strategy even more rapidly than at the time of the Alliance UniChem merger.' He grimaces. 'I waited two years for the merger to be completed and for the Office of Fair Trading to decide. After that delay, I just want to accelerate.'

So what does he have in mind for dear old Boots, a once-great retailer now saddled with the description 'legacy'? 'I want to bring back Boots to what it was. I want to expand Boots through Europe, I want to expand the activities of Alliance Boots into the emerging markets of Asia and China. I can now put together what I was dreaming at the time of the merger.'

Some say he's intent on growing the company at any price, that he has no deep appreciation of the Boots tradition. He shakes his head. 'What Jesse Boot left,' he says, referring to the revered founder of the business, 'is two fundamental values: partnership and entrepreneurship. I want to expand the company so it will supply the partnership with more customers, more people who think the same way. Same with entrepreneurship. I want to develop a company that has a clear identity with those two fundamentals.'

Boots has lately turned its upper floors, variously, into opticians, photo-labs, quasi-health centres, babies' clothes suppliers and audio and music providers. Baker had told me that one of Boots' biggest problems was how to make profitable use of its space. The latest wheeze in my branch in south-west London is to move the pharmacy upstairs, forcing regulars, including old folk, to climb the stairs.

Boots doesn't sell much that can't be found in a Tesco or Asda superstore, and Pessina isn't known as a retailer - his background is mostly in wholesale pharmaceuticals. 'I'm not against being a retailer,' he says, 'it's one part of Alliance Boots. We must be a retailer where the focus is on healthcare and well-being. Our mission is to help people to feel and look their best.'

He's no Philip Green or Sir Stuart Rose, but that mission statement is the first time I've heard anyone articulate what Boots might stand for. 'Boots is important for its pharmacies and healthcare, but also for beauty. It has 40% of the beauty market in the UK. Boots No. 7, which was part of that legacy - it was created in the 1930s - is the country's best-selling beauty brand. It's remarkably high quality at reasonable prices. It can survive and thrive.'

One thing Pessina knows about is Europe, and it's impossible to disagree when he says there is nothing like Boots there. Taking the Boots formula to Europe, and to the emerging markets, may prove to be Boots' salvation, even its renaissance. 'Jesse Boot created a fantastic brand in the UK. Probably, he would have liked to create the same thing overseas.'

There is, though, another aspect to his inheritance. At Beeston, on the outskirts of Nottingham, Boots has a 279-acre campus. It employs 7,000 people, making it Nottingham's biggest private employer. The site, containing a mixture of offices, laboratories and manufacturing, seems to go on for ever. The buildings are large and impressive. But in the age of globalisation and outsourcing, this complex is something of a dinosaur. Not many companies today have anything approaching such a concentration of labour or carry the burden of having a location so dependent on them.

Pessina's response is unexpected. 'We want to invest more in Nottingham, not less. It will continue to be the centre of Boots. There is a lot of land and properties that are empty and not being used. We're starting to breathe new life into this. Whatever we do, it will not reduce the importance of Nottingham for Boots.'

So, to his lover Barra and her seat on the board. How does he feel about the criticism he and she have received? 'I'm not happy at all about the press. I'm a very private man and I don't have anything to hide.' Was he shocked? 'No.' Upset? 'Yes, maybe sometimes.'

What annoys him is that his critics 'don't understand how good my partner is as a manager. If they asked people who work for her what she's like they would understand why she is a director. It's not as if it's a personal issue any more - she's been on the board for decades.'

Pessina says it's a mistake to assume he is motivated by wealth. He's doing it 'because I have a passion to create. I have the spirit of a builder. When I see something I always want to see it made stronger and more efficient. That's my first desire - not to grow the business just in size but also to make it grow in quality.'

The Alliance Boots staff, he says, 'must be ready to change, to change and to change again. Distribution is becoming more global and the pharmacy side is at the very beginning of its consolidation. Pharmacists, too, are increasing in influence in terms of the advice they can give. We must follow those trends.'

His aim is to deliver double-digit growth. 'There's so much to do - the products are fantastic, the spirit of the people is fantastic,' he says. 'The important thing now is to motivate them and to convince them they can succeed.'

Most of his fortune, he says, is tied up in the business. But he admits with a grin to having 'a good amount outside the company. I have a yacht I don't use, and an art collection.' He prefers Flemish 16th and 17th century and Italian paintings from the 13th to 17th centuries.

Home is Monte Carlo. 'I've lived there for 16 years and I commute from there.' In London, he lives in a hotel. He won't buy anywhere, 'because if I have a home here I have to run it'.

There's no truth in the claim that he travels second class to save money. 'I fly first class because I fly so often and I always have meetings to go to and I need to feel good for those. It's true I don't like extravagant things. I like good restaurants and good wine. I have a very comfortable life.'

He stands up. 'As you can see, I'm a normal guy who is just a bit shy. I don't like normal millionaires' things and I'm different from them, but so what?' With that, he shakes hands, turns and is on his way. Pessina is low-key, yet he's a billionaire intent on leading an industry. He may not be hail-fellow-well-met, but it would be foolish to bet against him.

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