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Lloyds bidders set for final fight

The pounds 650m three-way battle for Lloyds Chemists enters its final stage this week with the publication of the offer document from Gehe, one of the bidders.

Under City takeover rules, the German group has until tomorrow to issue the document to Lloyds shareholders, triggering the 60-day timetable within which the bid must be completed. If it runs anywhere near to the wire, the tussle for Lloyds will have been going on for over a year.

The offer document will come hot on the heels of the first indication from rival bidder UniChem of the level of interest its cash and shares offer has elicited from shareholders.

The Surrey-based wholesale and retail chemists group will today announce the level of acceptances at the first closing date for its bid. But observers expect few takers at this early stage of the proceedings.

Lloyds' shares on Friday stood unchanged at 513.5p, well clear of both bids. UniChem's terms of 1.6 shares plus 92.6p in cash valued its target at just over 490p, which is 10p less than the 500p all-cash offer from Gehe.

Most observers expect that one or both of the bidders will be forced to raise their terms to clinch the bid. Analysts expect Gehe to spin the bid timetable out as long as possible to put maximum pressure on UniChem, which faces difficulties if it wants to increase its offer.

The group is already straining its balance sheet with the bid at this level. Gehe claims its average gearing could soar to 490 per cent if it is successful, giving UniChem little room to manoeuvre to raise the cash element of its bid.

But increasing the amount of paper could prove counter-productive if, as some believe, the market pushes down the share price to take account of the resulting earnings dilution.

UniChem launched its original bid on 18 January this year and was quickly trumped by a higher offer from Gehe, one of Europe's biggest drugs wholesalers. The German firm has since hinted that the original offer may be too high, given Lloyds' relatively poor performance in the intervening period.

Both bids were kicked into touch for over seven months after they were referred to the Monopolies and Mergers Commission, which subsequently allowed both sides to renew their offers, subject to the sale of six or seven relatively minor wholesale depots.