Industry rivals Boots and Alliance UniChem are expected to announce a merger deal today worth £7.5Bn. The deal will be the largest retail merger since Morrisons bought out Safeway for £3Bn in March 2004.
The new company is proposing to axe 2,000 jobs and combine its current distribution operations. Boots was unable to confirm the full scale of the job cuts or what areas were most likely to be affected. However, a spokesperson says: “Any changes to the supply chain structure will take three years to complete.”
The deal is likely to be scrutinised by the UK competition authorities, who may require the merged company to sell some stores. When combined, the new Alliance Boots company would control 17% of the pharmacy market but could also hold a 40% share in drug wholesaling.
Investors have become increasingly dissatisfied with Boots’ performance over the past 18 months, during which it has issued three profit warnings. Boots has been struggling since facing stiff competition from the supermarkets who offer discounted vitamins and pharmaceutical products. Under the terms of the merger Boots would sell Boots Healthcare International, which makes products such as; Strepsils and Clearsil for £1.7Bn – £1.8Bn and return the proceeds to the shareholders.
It may not all be good news for the shareholders however, as in the nil-premium merger, neither set of shareholders will receive a premium over the market value of their shares. This will affect Alliance’s shareholders particularly as its shares have risen nearly 20% in the seven months of discussion. Boots chairman Sir Nigel Rudd comments: “I believe that this merger does an awful lot for customers, for shareholders and for indeed the employees.”