Unichem-Lloyds deal creates biggest chain of chemists

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MAGNUS GRIMOND

Unichem, the pharmaceuticals retailer and wholesaler, yesterday agreed a pounds 548m offer for its rival Lloyds Chemists to leapfrog Boots as the UK's largest chain of chemists. The combination will result in a chain of 1,300 retail outlets, 100 more than Boots the Chemists. It will trade under the Moss Chemists name. Unichem will also lead the market in drugs wholesaling, with a share of around 35 per cent.

Jeffery Harris, Unichem's chief executive, said the takeover offered the company "a unique chance to create one of Europe's strongest health- care groups".

Lloyds shareholders are being offered 232p in cash plus four Unichem shares for every three shares they own, or a partial cash alternative of 600p in cash and 2.327 shares for every three in Lloyds.

News of the deal sent Lloyds' shares 35p higher to 401p, well above their previous peak of 379p hit two years ago, after they soared 75p on Wednesday when the company first revealed the approach. Unichem, which said the acquisition would be earnings-enhancing in its first year, saw its shares jump 19.5p to 258.5p.

The deal will double the size of the company, trebling its retail market share from 3.5 per cent to 11 per cent, and raise its stake in the wholesaling market from a current figure of 32 per cent.

Despite its vastly improved market position, Unichem expects few problems from the regulation authorities. It is understood that management has been in discussions with the Office of Fair Trading for over a month and is well aware of any likely requirements to meet competition concerns.

Mr Harris said: "We believe the retail merger would create no difficulties for us. You would expect that, as our market share is very similar to Boots in that area." However, he said they did expect to be forced to sell two of the 10 warehouses owned by Lloyds' Daniels Pharmaceuticals prescription drugs distribution business, on top of three that would be closed anyway.

Lloyds' directors, led by chairman Allen Lloyd, have recommended acceptance of the bid. Mr Lloyd, who is on a two-year contract at pounds 510,000 a year, owns or controls a 7.5 per cent stake in the company, valued at pounds 38m under the terms of the offer. He has committed his own beneficial holding to the bid.

Lloyds has only recently started to rehabilitate itself after several years when it faced criticism in the City for its aggressive use of acquisition provisions, lack of financial information and shortage of independent voices on the board. Takeover rumours have swirled round the company since last March, when its shares plunged after it announced the closure of over a quarter of the Supersave drugstore chain.

Unichem expects to reap savings of pounds 15m in the first full year of the merger, rising to pounds 20m in the second. Having completed a review of Lloyds' sites, the expectation is that 30 of the 924 pharmacies will be disposed of and several head offices closed.

Unichem estimated pre-tax profits of at least pounds 49.3m in the year to last December, up from pounds 44m in 1994, before expected rationalisation costs for Lloyds of pounds 26m.

Out of flat earnings per share of 18.8p, the company intends to pay a final dividend of 5.3p, raising the total for last year by 12 per cent to 8p.

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