Boots deal is ‘looking up’
Boots chief executive Richard Baker claimed yesterday that investors are warming to the idea of the proposed merger with Alliance UniChem.
The proposed £7bn “merger of equals” was met with a lukewarm response by shareholders and ratings agencies when it was announced at the start of this month.
However, in the intervening weeks, Baker, chairman Sir Nigel Rudd and Alliance UniChem deputy chairman Stefano Pessina have now held in the region of 50 meetings with key parties. Former Asda man Baker is confident the deal will get the green light.
“If you look at our share register we’ve seen no significant selling of our stock and our share price has been very robust during the period [since the merger was announced],” he said. “I have to interpret that as a positive sign.”
The retailer reported a 9.6 per cent fall in operating profit to £163m on sales of £2.6bn in the six months to 30 September. During the period like-for-like sales at Boots the Chemists fell 1.3 per cent but were flat if the effect of Government-imposed changes in prescription prices are removed.
“That’s a pretty good result when you take into account the performance of the overall retail market over that period,” said Baker. “We’ve got a canny consumer these days and they read all this stuff about retailing being difficult and they’re all waiting for bargains and the big sale events.”
The retailer’s strategy of revamping house brands has worked, with sales of the new-look No7 up 12 per cent in the half. Beauty sales increased 7.3 per cent. Sales of teen make-up brand 17 are also up 13 per cent. While Boots has addressed its pricing in relation to competitors such as the supermarkets, lower prices translated into lower margins.
Numis analyst Steve Davies said the 20 per cent fall in operating profit at Boots the Chemists appeared to be the rationale for the merger but was sceptical of its merits. “We are yet to be convinced that the potential merits of the merger outweigh risks,” he said.