Only Boots owned more high street pharmacies than Lloyds Chemist
when German drug wholesaler Gehe and its English competitor Unichem
joined battle to add it to their own chains in January 1996. The prize
was Lloyds’ 920 valuable pharmacy licences - as rare as ’dragon’s
teeth’, according to Unichem chief executive Jeff Harris.
Unichem first offered an agreed 422p cash and shares for each of Lloyds’
291p shares. Gehe hit back with a 450p cash-only offer, setting the
scene for a year-long hostile campaign, which ended in Gehe’s 525p per
Citigate’s primary task was to convince analysts and the press that
Gehe’s cash-only bid offered shareholders better value because it lacked
the volatile share element in Unichem’s cash and paper offer.
Simultaneously it had to convince them that the relatively unknown Gehe
was a substantial pan-European company committed to its UK
Strict Stock Exchange rules on information release during take-overs,
and the looming prospect of a Monopolies and Mergers Commission review
of both bids, forced Citigate to mount a conventional campaign to
counter initially hostile analyst and press comment.
Its first stroke was to introduce Gehe’s management to a wide range of
retail and pharmaceutical analysts at a series of London meetings -
set-piece presentations designed to familiarise them with Gehe’s
personalities, let Gehe counter criticisms that it was not a serious
bidder and to explain the benefits of linking Lloyds to both its
360-strong Hills Pharmacies high street chemists chain and its European
drugs supply operations.
In the four quiet months from March during which the MMC examined the
bids, Citigate maintained a steady flow of press releases, phone calls
and individual meetings with analysts, in which it stressed the
potential impact of NHS spending cuts and stock market volatility on the
value of Unichem’s share price and, consequently, on the value of its
bid. Pan-European Gehe, by contrast, had reserves of cash that were
unaffected by UK health policy.
But its main chance came in June, when previous Gehe acquisition
wholesaler AAH, which had owned the Hills Pharmacy chain, released a set
of good financial results. Although of relatively minor news interest,
Citigate promptly called press and analysts’ meetings at which Gehe’s
management focused on how well the integration of AAH was going, and on
Gehe’s strong cash flow - a counterbalance to the fears it had seeded
over Unichem’s paper value.
Unichem’s share price began to underperform the market, allowing
Citigate to lever in more doubts about the value of its bid. With no
direct way of measuring the effect of the campaign, Citigate watched
press comment and analyst opinion swing in favour of a Gehe victory.
January 1996 press comment characteristically includes more information
about Unichem than Gehe and criticises Gehe for delays. Six months later
it covers fears over Unichem’s ability to fund its bid and journalists
clearly have more information to hand about Gehe.
Grieg Middleton analyst Tony Cooper remembers a hard-hitting campaign in
which any vagueness in the claims made by Gehe escaped detection by the
press, and far less negative comment than that aimed at Unichem.
Or, as another analyst put it: ’They won the PR battle hands-down.’
Campaign: Gehe bid for Lloyds Chemist
Timescale: January 1996 to January 1997
PR budget: Undisclosed