Institutions hold the key to AAH
The Investment Column
Wednesday 19 April 1995
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.
- 1 Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
- 2 Oil tanker with $100 million cargo goes missing off Texas coast
- 3 George Galloway left with severe bruising after attack in Notting Hill by man 'shouting about the Holocaust'
- 4 Lady al-Qa’ida: On the trail of Dr Aafia Siddiqui, the world’s most wanted prisoner
- 5 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
With Douglas Carswell joining Ukip, my party has taken another giant step forward
- < Previous
- Next >
iJobs Money & Business
Highly Attractive Salary: Austen Lloyd: BRISTOL - This is a very unusual law c...
£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...
£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...
£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...