Boots and Alliance UniChem were said today to be finalising the creation of a £7bn (€10.3bn) pharmacy giant as fears grew that a deal could result in job losses.
Details of the merger of the two FTSE 100 firms are expected to be announced tomorrow morning and could include a £1bn (€1.5bn) cash sweetener to Boots shareholders.
The new company – to be called Alliance Boots – will control 15% of the UK pharmacy market and have nearly 2,500 chemists in Europe.
But the ‘merger of equals’ may lead to cuts in the combined workforce of more than 100,000 if roles are duplicated in drug wholesaling, administration and high street stores.
Reports said there are around 350 Boots stores in the vicinity of Moss and Alliance outlets owned by Alliance UniChem.
This could arouse the attention of competition authorities who may also wish to probe the enlarged company’s share of the drug wholesaling market, which will possibly be as high as 40%.
A spokesman for Boots declined to comment on reports of the merger, which come less than a week after the retailer issued a thinly veiled profits warning and declined to reiterate its sales forecast for the year.
Executives of Boots and Alliance UniChem are thought to be keen on a deal because it will give them more muscle when negotiating contracts with suppliers.
This would give them more freedom to cut prices and head off the challenge of supermarkets which are intent on capturing a greater share of the retail market for medicines.
It is understood that all stores will be rebadged as Boots and the 156-year-old brand will be the focus for expansion abroad, building on Alliance UniChem’s presence in the Netherlands, Italy and Scandinavia.
In addition to the possibility of a drawn-out competition probe, the merger could be threatened by rival bids from private equity groups or trade buyers.
A report in The Sunday Times named private equity firms Permira, KKR and Apax partners as potential bidders as well as Superdrug owner AS Watson and even Sainsbury’s.
If the merger is agreed, then Boots chief executive Richard Baker and chairman Sir Nigel Rudd are likely to hold on to the same roles with the enlarged group.
Stefano Pessina, executive deputy chairman of Alliance UniChem, would also retain his current position and has pledged his 32% stake in the pharmacy group in support of the deal.
Boots is wrapping up the £1.2bn (€1.8bn) auction of its Nurofen-to-Clearasil healthcare division and the proceeds are expected to be handed to shareholders before the remaining business is merged with Alliance UniChem on a 50-50 basis.
Alliance UniChem is currently based in Weybridge, Surrey, while Boots Is based in Nottingham.
It is expected that the new company will have its headquarters in London, although much of the retail operations will stay in Nottingham once the merger is completed.