The board at UK retail pharmacy giant Alliance Boots has rejected a £9.7 billion takeover bid from its deputy chairman and the private equity firm Kohlberg Kravis Roberts & Co.

The Nottingham-based company said that the 1,000p per share offer, made by KKR and Stefano Pessina, who as well as being deputy chairman is also a 15% stakeholder, did not reflect "the fundamental value of the company or the attractive prospects, opportunities and synergies” available following the recent completion” of the merger between Boots and Alliance UniChem which created the new entity.

The bid represented a premium of around 24% on the firm’s closing stock price on March 8 and since then, Alliance Boots shares have shot up, as investors believe that a deal is still very much on the cards. Before the board made its announcement, analysts at Dresdner Kleinwort had upgraded the stock from ‘sell’ to ‘hold,’ and said that they expected Alliance Boots to accept the offer in the near term, noting that Mr Pessina has expressed his optimism regarding the company’s long-term growth prospects.

Again before the bid was rejected, Deutsche Bank said that in view of the multiples that the offer represents, it appears attractive but marginally less so, when the premium to the closing price on March 8 that the offer represents is taken into consideration. Other industry observers are now suggesting that a bid may be soon in the offing that is in the region of 1,300 pence per share although it has been noted that KKR, as part of a consortium, has also expressed an interest in buying the UK supermarket chain J Sainsbury and would be unlikely to pursue both of these takeover targets.

The Alliance Boots merger combined 2,600 stores and a wholesale drug supplier to over 125,000 pharmacies and hospitals and when the deal was announced, the firm said it plans to cut at least £100 million in costs by 2010.