Gehe tops UniChem's agreed bid for Lloyds

MAGNUS GRIMOND

Lloyds Chemists, owner of Britain's second-biggest pharmacy chain, was yesterday at the centre of a bitter battle for control as the German group Gehe trumped UniChem's already agreed offer with a pounds 584m all-cash bid.

The market had been expecting Gehe to move after it was forced to admit that it was holding discussions with Lloyds last week, but the shares jumped 23p to 467p - 17p above the 450p Gehe offer - as the market anticipated a yet-higher offer from UniChem.

Lloyds switched from backing the UniChem offer and said last night it recommended shareholders to accept Gehe's new bid - in the absence of a higher offer.

UniChem said it was still considering its response. Its current cash- and-shares offer is worth 408p a share, after a 3p rise in the share price to 248p. Analysts calculate that UniChem could justify a bid as high as 500p without suffering earnings dilution. But with gearing already set to hit 140 per cent after the lower offer, observers believe that would push the company close to its self-imposed limit that interest should be covered at least five times by profits.

One analyst said: "The consensus around and about [the City] seems to be it could put another pounds 1 on its bid. But it is interesting they have gone away to think about it, given that they have known that a bid was coming for some time."

Whatever happens, Lloyds' chairman, Allen Lloyd, will come out ahead. His personal stake is valued at pounds 41m by the Gehe bid, pounds 3m more than under UniChem's.

Observers were surprised that Gehe had not come in with a knock-out blow at around 480p to 500p, leading to speculation that its bid may be a spoiler to push the price up for UniChem. Last year, the German group, already Europe's biggest drug wholesaling group, spent pounds 400m in a contested bid for AAH, which controls close to a third of the UK drug wholesale market excluding Boots, a similar market share figure to UniChem's. A combination with Lloyds would take its share to around 39 per cent and add 900 pharmacies to the 295 outlets owned by AAH, creating the second-biggest chain after Boots.

Ray Bowden at Robert Fleming said the dual interest in Lloyds "has all the ingredients of a scrap". Both bidders badly want to get their hands on Lloyds, and both will be disadvantaged if they do not. This is a unique opportunity, he said, "because both of the bidders are below critical scale, particularly because of the synergies to be gained from distribution and retail. So to the extent that one benefits, the other suffers".

Dieter Kammerer, Gehe's chairman, said he expected the cost savings from a merger to be similar to the pounds 15m-pounds 20m that UniChem has quoted. "This is definitely the potential, but the time-frame could be expected to be longer... than UniChem [thinks]."

Dr Kammerer estimated that the forecast savings would not be achieved for three to four years, although he refused to specify where they would come. He said all activities other than the chemists' shops and the wholesale side, would be placed under review. However, there were no plans to sell any assets as yet and businesses like the Holland & Barrett healthfood chain and the Farillon agency pharmaceutical distribution operation may be kept.

Dr Kammerer denied speculation that Gehe, which is in effect controlled by the Haniel family, would have difficulty financing a bid.