UniChem raises stakes in battle for Lloyds

NIGEL COPE

UniChem increased the stakes in the battle for Lloyds Chemists yesterday when it increased its offer to pounds 617m. The bid, UniChem's final offer, trumps the pounds 584m tabled by Gehe, the German drugs wholesaler, and values Lloyds shares at 475p.

However, a higher offer from Gehe seems likely. It stressed yesterday it was still interested in Lloyds and was "considering the merits" of increasing its terms. Analysts calculate that Gehe may be prepared to increase its cash bid to 490-500p a share which would be considered a knock-out blow.

Lloyds Chemist shares closed 23p higher at 493p. UniChem's shares also rose 8.5p to 493p. Lloyds issued a statement noting Unichem's final offer but advising shareholders to take no action pending clarification of Gehe's intentions.

The new terms of the UniChem bid are 526p in cash for every 10 Lloyds shares, plus 16 new UniChem shares

It also intends to ensure that Lloyds pays a special dividend of 40p a share as soon as the increased offer becomes unconditional. The increased bid values the stake of Alan Lloyd, founder and chairman, at pounds 47m.

UniChem's chief executive, Jeff Harris, expressed confidence that his offer would be enough: "We wouldn't have launched it if we didn't think it would succeed," he said. He added that if Gehe topped Unichem's bid it would be paying over the odds. "We are saying that Lloyds is worth no more than this to us. If they want to beat it, in our view they would clearly be over-paying."

UniChem's increased offer came as no surprise to analysts, though many expressed concern that the balance sheets of the eventual victor will be severely stretched.

UniChem's pounds 617m bid would increase gearing to 135 per cent. Mr Harris said that part of the debt would be paid by the possible sale of unwanted parts of the Lloyds business. This is likely to include the Holland & Barrett healthfood chain which has 365 outlets. The chain could fetch about pounds 70m.

UniChem has already had expressions of interest in Holland & Barrett from overseas retailers. The American group, General Nutrition Companies, moved into the UK market in November with the aim of opening 400 healthfood shops and may be a candidate.

David Stoddart, analyst at Henderson Crosthwaite, said the takeover battle for Lloyds was being driven "by strategy rather than spreadsheets". He said that whichever company acquired Lloyds would rise to second place behind Boots in the UK pharmacy market; the loser would be a distant third.

UniChem repeated yesterday that earnings would be "significantly enhanced" in the first full year after the deal. Cost savings worth pounds 20m would be made by 1997.

It is Britain's largest drugs wholesaler and, if successful in its tilt at Lloyds, would change the name of Lloyds' 921 chemists outlets to Moss.

Gehe, Germany's largest drugs wholesaler, is keen to expand in the UK and in May paid pounds 400m for AAH, the UK's second-largest drugs wholesaler.

The European Commission announced yesterday that it was seeking comments on Gehe's earlier offer for Lloyds.