UniChem backs Lloyds bid with earnings claim

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The Independent Online
UniChem said its renewed pounds 620m bid for rival Lloyds Chemists would be "materially" earnings enhancing in its first year as it shrugged aside the threat of competition from Marks & Spencer.

M&S yesterday denied a weekend press report that it was about to enter the market for non-prescription pharmaceuticals. But a spokesman said the group was looking at vitamin supplements as an extension of its skincare range. "We are actively researching the market in vitamin supplements. That is a logical progression," he said.

A UniChem spokesman said its own-brand vitamins had always been competitive against those sold by the major supermarket chains, so any entry by M&S would not change things: "I don't see anything they are doing is different to other supermarkets. I don't see that [the arrival of Marks & Spencer] should affect us significantly."

The Lloyds earnings claim came in a letter to its shareholders over the weekend, attempting to enlist their support for the bid. The chairman, Lord Rippon of Hexham, reiterated earlier forecasts that pounds 15m of cost savings could be squeezed from the combined group in the first year of the acquisition, rising to more than pounds 20m in the years following.

"There will also be significant further opportunities to improve and develop the business in the medium term," Lord Rippon said.

The letter said the cost savings estimates were supported by detailed analysis carried out by operational management. Delivery of the savings would be unaffected by the planned disposal of the wholesaling depots, required by the Department of Trade and Industry following the investigation by the Monopolies and Mergers Commission, UniChem said.

The group also rebutted criticism from Gehe, the German group which remains a potential rival bidder for Lloyds, that it did not have the experience to integrate a major acquisition. UniChem pointed to "extensive experience of integrating businesses", having absorbed 334 pharmacies into its Moss Chemists chain and a number of wholesale operations since the end of 1991. Lloyds' integrations would be handled by specialist teams working with operational management, the group said.

It also dismissed claims by Gehe that Lloyds' reduced profitability was another source of increased risk for UniChem. The group said it "does not believe that the deterioration in Lloyds Chemists' results for 1996 will have an adverse impact on realising the synergies". Not only would the uncertainty over the future ownership of Lloyds be resolved, but it intended to sell the loss-making third-party wholesaling and drug store operations.

Gehe had no comment on the UniChem letter yesterday and is expected by analysts to let its rivals "sweat" while it makes up its mind.

Lloyds shares rose 3p to 518.5p.

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