FTSE 100 higher ahead of Fed meeting, rumours Boots could return to London market, Boohoo tightens grip on Revolution Beauty

“The FTSE 100 ticked higher as investors await the latest decision from the Federal Reserve on interest rates,” says Danni Hewson, Head of Financial Analysis at AJ Bell.

“So far, the market is seeing nothing to disabuse it of the notion that rate cuts are on the way in 2024 as US inflation came in as expected yesterday and UK GDP figures show the economy is weakening faster than anticipated.

“To what extent Fed chair Jerome Powell and his Bank of England counterpart Andrew Bailey seek to dampen these expectations could well determine the trajectory of stocks heading into the end of the year.

“The worse-than-expected 0.3% decline in October GDP may prompt some concern given the lagged impact of interest rate hikes mean the full pain is not yet being felt by individuals or businesses. So far, the UK has managed to avoid recession but many more releases like today’s might put its ability to keep its head above water under question.”

Boots

“Walgreens Alliance seems intent on getting rid of UK high-street chemist Boots from its portfolio. Having tried and failed to sell the business to private equity in 2022, reports suggest it might revive plans to float Boots on the London market.

“Boots used to be a London-listed stock until it became the first FTSE 100 constituent to be taken over by a private equity firm, in 2007. Five years later Walgreens bought a 45% stake in the group and then bought the rest in 2014.

“Putting Boots back on the UK stock market makes sense given the geographic focus of the business. It would also give the UK market a boost given it’s been a long time since we had a household retail name of this scale float on the London Stock Exchange.

“Walgreens blamed unfavourable market conditions last summer for scrapping plans to sell Boots. Several private equity parties were understood to be interested but none offered the type of money Walgreens wanted.

“Private equity companies flourished for a long time while interest rates were low, borrowing money cheaply to buy companies whose cashflow helped to repay that debt. With rates having shot up over the past two years, the economics of large takeovers have changed as it has become more expensive to finance deals using debt.

“Walgreens itself has high levels of debt compared to its earnings and it needs to find a way to repair its balance sheet. Floating Boots would enable it to sell some of the business to a new pool of investors and give it an exit path for the future. Normally in these situations, the parent company wouldn’t keep the remaining stake in the business for long once it has been floated.

“Like many big names on the UK high street, Boots has too many stores and it is now in the process of slimming down its estate to focus on the best performing sites. While it has a strong brand, Boots faces considerable competition in the cosmetics market from online sellers, although the demise of Wilko removes a major rival for the sale of basic healthcare products like deodorants and painkillers.

“Boots last month struck a deal to offload its £4.8 billion pension scheme to Legal & General, seen as removing a major obstacle to Walgreens selling or floating the business.”

Boohoo/Revolution Beauty

“Boohoo seems to be tightening its grip on cosmetics firm Revolution Beauty after a bitter battle. Having built a substantial stake in the company, Boohoo forced out the CEO and chair in July.

“Chief financial officer Elizabeth Lake had remained in place but her departure, to be replaced by a former Boohoo finance director, makes it clear who is firmly in charge. Revolution Beauty has also separately agreed a settlement on a dispute with one of its former founders and is in talks with another.

“Where this leaves beleaguered minority shareholders, who since the 2021 IPO have seen accounting issues and patchy trading take a significant chunk out of the value of the company, is up for debate. They will hope Boohoo’s scale and retail knowhow can help the brand, but the online retailer itself hardly has an unblemished record.”

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