Terra Firma, which had previously made an approach to the chemist chain, this morning decided to up its offer and kick off a bidding war for the retailer. The Terra Firma consortium, which includes bank HBOS and medical charity Wellcome Trust, made an offer of £10.85 a share earlier this week.
The offer from Kohlberg Kravis Roberts stands at £10.90 a share and was this morning accepted by the Alliance Boots board.
Terra Firma is bidding £11.15 a share, but it said there was no guarantee its offer would become definite.
News of the second bid pushed shares in Boots up 8.4%, or 89p, to £11.39 before falling back slightly to £11.10.
Stefano Pessina, the Boots' billionaire deputy chairman who owns 15% of the shares at present, has backed the bid. KKR first made a bid for the company in March, but was rejected by the board because the share price offered was too low. The offer is now 33.7% higher than the Boots share price before the approach by any private equity firm was made.
Pessina said: "We are committed to accelerating the development of Alliance Boots in order to meet the challenges and opportunities that we face and to build a successful global pharmacy-led healthcare and beauty group."
Boots owns 2,600 retail outlets in the UK and also has 400 outlets overseas. Boots the Chemist merged with Alliance Unichem in October 2005 in a £7bn deal that led to 100 redundancies. It now supplies pharmaceuticals to more than 125,000 hospitals and health centres.
Nigel Rudd, chairman of Alliance Boots, said: "I have been privileged to chair one of this country's greatest retail brands and to have put in place the management team that has put this company back on the road to success.
"The formation last year of Alliance Boots created a hugely valuable business and this offer reflects that. I am delighted that the board has been able to achieve such a good price for shareholders."
Mother London currently creates all advertising for the Boots brand after winning the account in 2003. At the time, Boots spent as estimated annual figure of £90m on all integrated marketing and advertising.