Brussels to refer Lloyds bid back to UK

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The European Commission is understood to have concluded that scrutiny of the pounds 650m bid by Gehe of Germany for Lloyds Chemists should be handled by the UK authorities.

In what will be seen as a victory by the Government in its attempts to resist further encroachments by the European Union on its authority in competition regulation, a meeting at the Commission yesterday decided to hand competition scrutiny back to Britain's Department of Trade and Industry, according to sources. The decision is expected to be announced within days.

The Office of Fair Trading will now look at the bid, but given the similarities with the competing bid from UniChem for Lloyds, which has already been referred, it is almost certain that Gehe's offer will also be brought before the Monopolies and Mergers Commission. A reference would lead to the Gehe bid lapsing during the MMC investigation, likely to last until June. The UniChem offer has already lapsed.

Lloyds Chemists yesterday told shareholders to do nothing in response to Gehe's raised bid of 500p a share announced last month, pending clarification. It said: "As and when the regulatory position is clarified, the board of Lloyds Chemists will make a further announcement."

UniChem and Gehe are very evenly matched in the UK market, following last year's acquisition by the Germans of the British group AAH. Each controls around a third of the UK drugs wholesale market to independent retailers and own between 300 and just over 400 pharmacy outlets.

Sources within the Commission suggested last week that it would not fight to retain scrutiny in Brussels. The EU competition directorate has the right to look at bids over a certain size and where they involve a cross- border element, but the DTI can call them back where market domination is threatened in the distinct UK market.