Institutions hold the key to AAH

The Investment Column

AAH is a classic example of a conglomerate gone wrong. It entered the Nineties with a rag-bag of businesses ranging from building supplies to transport services, having finally exited from the last vestiges of its original solid fuel supplies operations.

More by a process of attrition than good management, pharmaceutical wholesaling and the chemists chain have emerged as the main money-spinners over the past five years. But even that has not been very successful, as the share price testifies. From a high of 597p in January 1993, the shares touched a low of 286p in February, just before GEHE, the German group, took its first £377m tilt at the company.

GEHE has had a field day. As it points out, in July 1993 Hoare Govett, AAH's own broker, was expecting earnings of 43.2p for the year ending in March. Since then, after a series of cuts, that prediction has been halved and the company recently estimated earnings would be 21.5p for last year - 38 per cent lower than in 1993-94 and well short of the 33.2p peak, excluding exceptionals, achieved in 1990. The contrast with arch- rivals UniChem, which has lifted earnings by over 50 per cent during the course of the recession, could not be clearer.

That the present management of AAH has failed shareholders is not in doubt. The question is whether GEHE is paying enough for control. The latest and "final" offer, worth just over £400m or 445p a share, is finely pitched. At nearly 21 times last year's estimated earnings, GEHE can justifiably say it is being generous, and the absence of a white knight at this late stage makes it increasingly unlikely that one will appear.

But AAH is significantly more valuable to GEHE than to most bidders not precluded by monopolies considerations. Already large or dominant in the German and French markets, it would dearly love to gain a similar position in another substantial area of operation.

AAH would not only deliver about a third of the UK and Irish markets, it would raise GEHE's overall European share by perhaps 3 percentage points to about 10 per cent. Healthcare budgets remain ever more strictly controlled by governments, but that command of the market should eventually give it substantially more buying power.

In the short term, GEHE would also reap the benefit of the £14m of cost savings the AAH management has promised to wring out of the business over the next two years if it escapes the clutches of the Germans. Raising wholesaling margins to about UniChem's level of 3 per cent could deliver another £10m to profits, on one estimate.

GEHE set the clock ticking yesterday with the publication of its latest offer document. Shareholders have until 2 May to decide. But with the bidder controlling nearly 23 per cent of the equity, the final decision rests with four institutions sitting on a third of the equity.

They could just extract a little more. Small holders would be well advised to sit tight until the last moment, although the nervous may want to take profits now as the price is likely to fall off a cliff if GEHE decides to walk away.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence