DTI leaves UniChem ahead in Lloyds race

JOHN WILLCOCK

UniChem yesterday edged ahead of German company Gehe in the race to buy Lloyds Chemist, after the DTI unveiled tough conditions on any future bid by either suitor.

Ian Lang, President of the Board of Trade, said he would block the bids by UniChem and Gehe unless undertakings were given by the companies to sell certain pharmaceutical wholesaling businesses operated by Lloyds. The sales must be completed by 18 October.

UniChem launched its first bid for Lloyds in January, prompting Stuttgart- based Gehe to enter the fray. After four rounds of bidding, the latest cash offer by Gehe valued Lloyds at pounds 649.9m, topping UniChem's second and final pounds 617.3m cash-and-share offer.

The bids were put on hold pending a Monopolies and Mergers Commission investigation into the concentration of pharmaceuticals wholesaling that would emerge if either bidder won the contest.

Mr Lang said yesterday that he accepted the MMC conclusion that both bids could be anti-competitive. He also said that two of the five members of the MMC Group agreed with the anti-competitive findings "but indentify further adverse effects and believe that the proposed mergers should be prohibited."

Lloyds's shares finished the day up 6p at 487p, after dipping in the wake of the announcement to 450p.

The general City mood was that the deal would go through, but that ground between the two bidders was shifting.

A spokesman for Gehe, which is bidding for Lloyds via its UK subsidiary AAH, said yesterday: "There's a need for everyone to be realistic. This announcement means we would need to sell off nearly the whole of the wholesale operation at Lloyds. This has reduced the synergies for both of us [UniChem as well]."

Unichem said it was confident it could meet this undertaking. A source close to the company said it was " a pain in the neck" to have to go and search for new buyers, and in such a tight timetable, but that this did not significantly damage the strategic attractions of the deal.

In a statement, UniChem said it would try to identify buyers for the related businesses by the specified 18 October deadline, adding that it "expects that it will be possible to meet the requirements of the Secretary of State for Trade and Industry". UniChem said it still viewed Lloyds Chemists as an attractive opportunity and would consult the Office of Fair Trading.

Both UniChem and AAH have roughly 30 per cent each of the UK wholesale pharmaceutical market. Lloyds has about 5 per cent, Boots between 5 and 10 per cent, and independents the rest.

Gehe's ardour for the deal has cooled since it counter-bid against UniChem in January.

The Gehe spokesman sounded lukewarm yesterday, however. He pointed to Lloyds' recent profits warning, which forced the City to prune back forecasts for this year's pre tax profit from pounds 57m to pounds 50m. Lloyds said that uncertainty over the bid had hit profits.

He also singled out comments by Lloyds chief executive Peter Lloyd recently to the effect that there was a clear staff morale problem at the company and that people were leaving.

Gehe added that the UK decision "requires the sale of virtually the whole of Lloyds Chemists' pharmaceutical wholesaling business which we believe will reduce available synergies materially."