Campaigns: Gehe finds the right chemistry - Financial PR

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.

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

share victory.



Objective



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

interests.



Tactics



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.



Results



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.



Verdict



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.’



Client: Gehe

Campaign: Gehe bid for Lloyds Chemist

Team: Citigate

Timescale: January 1996 to January 1997

PR budget: Undisclosed



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