Boots announces

High Street retailer Boots has unveiled plans to merge with Alliance UniChem in a deal worth an estimated £7bn ($12bn).

The combined company - to be called Alliance Boots - will own 2,600 stores employing 101,000 people across Britain, and will create one of Europe's largest drugs, beauty and healthcare groups, with sales expected to reach around £13bn. The head office of the enlarged group is likely to be in London although much of Boots' workforce will remain in Nottingham, where it was founded.

In a joint statement, the companies claimed that the deal will eventually lead to annual pre-tax cost savings of about £100m. Boots' chief executive Richard Baker and chairman Sir Nigel Rudd will maintain their positions at the combined group.

Shares in both companies rose sharply after news of the deal was announced: Boots' by £0.45 to £6.54 and Alliance UniChem by £0.34p to £9.01.

The merger will diversify Boots' business away from its dependence on the high street and into community pharmacies, an area that the government is keen to promote. The bulk of Alliance Unichem's business is in wholesaling drugs to chemists, hospitals and health centres across Europe, which should provide Boots with a suitable platform to expand onto the continent, thus demonstrate to investors it has identified a path for growth.

Boots owns 1,400 pharmacies in the UK and has a stock market value of £4.4bn but has been struggling in recent times in the face of competition from supermarket giants Tesco and Asda. Its efforts to broaden its retail offering over the last 10 years, offering dentistry, chiropody and laser eye surgery, have proved largely unsuccessful; profits fell 11% in 2004, and it recently warned of 'difficult' trading for the rest of the current year.

Alliance UniChem has grown steadily through acquisition to become the third largest pharmacy chain in Europe. It operates 1,200 pharmacies in the UK, Norway, Italy, Switzerland and the Netherlands and has a market value of £3.15bn. However, it has had difficulties recently, and in July 2004 chief executive Ian Meakins downgraded his growth forecasts because of 'a slowdown in the wholesale drugs business'.

Alliance Boots will control 17% of the UK drug retail market share but 40% of the wholesale drug sector, which could prompt a probe by the competition authorities and may lead to the merged company having to sell some stores.

Alliance UniChem's executive deputy chairman, Stefano Pessina, said the deal would 'enhance our offering to the independent chemist', and the combined firm will be in a strong position to operate medical centres under the NHS following its opening up to the private sector. The deal will not stop the sale of Boots' over-the-counter medicine division, which manufacturers and distributes household brands including Nurofen, Strepsils and Clearasil.

The merger could also result in thousands of job losses because of 'overlaps in administration, high street shops and the wholesaling of medicines'.