Bid battle for Lloyds resumes

UniChem launches fresh pounds 657m offer for chemists chain as the OFT moves to end price fixing on over-the-counter medicines
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The Independent Online
The bid battle for Lloyds Chemists sparked into life again yesterday when UniChem renewed its 505.5p per share offer, valuing Lloyds at pounds 657m. UniChem made its move moments after the Department of Trade and Industry said it was satisfied with undertakings given by UniChem and rival bidder Gehe to make the required disposals of warehouses in the event of a successful takeover.

Gehe, the German pharmaceuticals group, said it was "evaluating" its position but was still interested in Lloyds. Dieter Kammerer, chairman of Gehe's management board, said: "We believe that UniChem would face significant risks in acquiring Lloyds Chemists, given the relative size of the companies."

The Lloyds Chemists board advised its shareholders to "take no action" on UniChem's offer. It said it noted Gehe's continuing interest. Lloyds Chemist shares increased by 17.5p to 521.5p, comfortably above UniChem's offer price. UniChem shares fell 9p to 249p.

The reopening of the 10-month bid saga was given added significance by the Government's move to end price controls on over-the-counter medicines following a long running campaign by Asda. UniChem shrugged off suggestions that the possible end of price fixing would harm its retail business, which operates under the Moss Chemists name. It said 88 per cent of its business was prescription medicines, which were unaffected by the announcement. Only 3 per cent of its remaining sales are over-the-counter medicines.

UniChem's offer is almost identical to its revised bid which lapsed in March. It is offering 16 new UniChem shares and 926p in cash for every 10 Lloyds Chemists shares held. The difference is that there is no underwritten cash alternative and no special dividend. UniChem already owns 9.9 per cent of Lloyds Chemists.

Gehe still has 21 days to submit a revised offer. Though Gehe has said Lloyds is now worth less due to the recent poor trading performance - it announced a 15 per cent profits drop to pounds 47m last week - analysts said UniChem's move may force it to bid higher.

Gehe criticised UniChem's offer, saying it ignored the fall in profits. It said the deal would dilute earnings in the first year and that reorganisation costs would be higher than originally forecast.

Justifying the renewed offer, UniChem's chief executive, Jeffrey Harris, said: "The core business of Lloyds Chemists is as valuable to us as it has ever been. I am confident that we can deliver what we have promised, including earnings enhancement after the first year."

The reorganisation costs, estimated at pounds 34m, are largely due to closing Lloyds' under-performing drugstore chain. Mr Harris said cost savings would be achieved through increased buying power, rationalisation of the distribution network and reduction of central overheads. These savings would contribute more than pounds 15m towards operating profits in the first year after the takeover and pounds 20m a year after that.

UniChem made its original pounds 650m offer for Lloyds in January. Gehe made a similar offer the following month. Both subsequently raised their offers but they lapsed in March when they were referred to the Monopolies and Mergers Commission. Both sides had to agree to sell seven wholesale warehouses.