Battle looms over Lloyds Chemists

Unichem, the pharmaceuticals retailer and wholesaler hoping to snap up Lloyds Chemists for pounds 548m, faces the prospect of a full-scale takeover battle today with a potential counter-bid from Gehe, its German rival.

Gehe is believed to be studying closely the possibility of making an offer for Lloyds Chemists, although sources insisted that no final decision had yet been taken. The German company has until February 14, when the acceptances from Lloyds become unconditional, to make its bid.

Analysts said yesterday that they believed an offer from Gehe was likely, if only to force Unichem to pay more than it was originally prepared to for Lloyds Chemists.

Unichem would still be in a position to raise the stakes further, but would have to go significantly above the 414p a share Lloyds was valued at when the original bid was made. Lloyds shares rose to 420p on Friday as speculation about a rival Gehe bid mounted.

A Unichem spokesman said the company was not prepared to comment on the possibility of a Gehe counter-bid.

"We have been speaking for a long time with Lloyds and have offered a fair price which has been accepted," he said. "We shall just have to see whether Gehe come in."

However, one analyst who has been closely observing the negotiations between Lloyds and Unichem said yesterday: "My feeling is that Gehe may make an offer. They do not want Lloyds to go cheaply. But if they do, they will be trumped by Unichem in the end.

"Unichem can afford to go higher without any dilution in earnings and it is possible that they will be forced to. Lloyds has been misunderstood by the stock market for some time and is now a sound company with a good management team in place."

Speculation over a possible Gehe bid follows the announcement less than two weeks ago that Lloyds Chemists had agreed to a Unichem offer for the company, which would create the UK's largest retail chain, with more than 1,300 outlets. Unichem has promised cost savings of pounds 20m a year from its merger, equal to a third of Lloyds profits in the 12 months to June last year.

Unichem is strong in pharmaceutical wholesaling and distribution, while Lloyds brings 924 stores, Holland & Barrett, its health food chain, and a veterinary wholesaler.

The company said the creation of an integrated retailing and wholesale operation would give it added clout, trebling its retail market share from 3.5 per cent to 11 per cent, and raising its stake in the wholesaling market from a current figure of 32 per cent.

Trading under the Moss Chemists name, Unichem said the takeover would also allow it to enter the own-brand market, rivalling Boots the Chemists, which would have 100 fewer branches than itself.

The deal was also expected to net more than pounds 40m for Allen Lloyd, the Lloyds chairman, and his family, who hold a 7.5 per cent stake in the company he helped to found with his brother Peter almost 20 years ago. Allen Lloyd, who has a two-year pounds 510,000 contract with Lloyds, had committed his own holding to the deal. He is expected to resign if the Unichem takeover goes through. Peter Lloyd stood down from the company last year.

Gehe, one of Europe's largest drug distributors, has about 30 per cent of the market in Britain following its pounds 400m acquisition last year of AAH, the distributor. The company was said yesterday to be interested in adding to its 300-strong Hills Pharmacy chain. However, it may find difficulties in raising the funds it would need after its pounds 400m outlay on AAH.

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.