Hutchison snaps up Superdrug as launch pad for 3G mobile phones

Superdrug changed hands for the second time in just over a year yesterday as Hutchison Whampoa snapped up the UK's second-biggest chain of chemists as a precursor to launching a third-generation mobile phone service in Britain.

The Hong Kong conglomerate which controls Hutchison 3G, the newest player in the UK mobile phone market, said the surprise move was intended in part to provide a retail outlet for the new handsets. From October, when Hutchison's 3G service – recently christened 3 – goes live, it will use existing Superdrug stores to distribute the new phones.

Hutchison Whampoa, which is controlled by Asia's richest businessman, Li Ka-shing, bought Superdrug as part of a €1.3bn (£800m) takeover of its Dutch parent Kruidvat. The deal will allow the ports-to-telecoms conglomerate to create one of the world's largest health and beauty chains. It comes just 13 months after Kruidvat bought Superdrug from Kingfisher. The British retail group had originally intended to float the chemists chain along with Woolworths.

News of the deal hit shares in Boots, the market leader, which recovered from an initial fall of 3 per cent to close down 1.5p at 574p in a rising market.

Analysts said Boots was likely to face stiffer competition. "Suddenly there's a very credible number two player in the UK market," said Nathan Cockrell, a retail analyst at Credit Suisse First Boston.

Matthew McEachran, at Investec Securities, added: "Being owned by Hutchison is seen as being more of a threat than Kruidvat."

Hutchison said its acquisition of Kruidvat, which is dependent on regulatory approval from Brussels, was the latest move in its strategic expansion into Europe's retail market. It already owns Savers, a UK-based chain of chemists, which has more than 100 outlets.

"Kruidvat was chosen for its exceptional reputation and market leader position. It is an excellent fit for our expanding retail business, giving us a more diversified portfolio and better geographical balance," Canning Fok, Hutchison's group managing director, said.

Mr Fok, who was speaking as Hutchison announced its half-year financial results, said the Kruidvat outlets would be used in part to distribute 3G phones. Until yesterday, the secretive mobile phone operator has kept its plans for retail distribution a secret.

John Barton, sales director of Hutchison 3G UK, said the acquisition would provide 3 "with great reach across the market in a new and exciting setting, providing the opportunity to bring 3 services to the UK high street". 3, which paid £4.4bn for one of the five 3G licences distributed by the Government in 2000, is poised to be the first group to launch a service in the UK in October.

While the suggestion that the new handsets would be available in Superdrug outlets initially hit shares in Carphone Warehouse, they later recovered to close up 2p at 83p.

Mr Barton added that while "new channels are vital to our success, traditional partners in this sector are important", sparking speculation that the group was close to announcing further reseller agreements.

Analysts, who remain highly sceptical that consumers will embrace the new technology, last night questioned the wisdom of selling phones aimed at social class AB users in outlets frequented by CD shoppers.