More muscle from pharmacy merger

The proposed share swap values Life Pharmacy at $36 million and Pharmacybrands at $20 million. Photo / Brett Phibbs

Planned deal with Pharmacybrands will help chemist group battle competitors amid retail slump

Life Pharmacy is merging with big chemist shop names Unichem and Amcal to form a new body with more buying muscle.

But there are challenges ahead for Life and the wider pharmacy sector. Pharmacy businesses are doing well from swine flu but are being knocked around in the retail downturn.

Life Pharmacy yesterday announced a share swap in which it will offer 39.783 Life shares for each share in Pharmacybrands - a company formed in 2003 from the merger of Unichem and Amcal.

The swap values Life at $36 million and Pharmacybrands at $20 million.

Life is the only pharmacy company listed on the NZX.

Yesterday, shares rose 24c to 60c, an increase of 66.7 per cent.

While comparatively small, the merger may be significant for emerging corporate interest in the pharmacy sector.

The merger offer and latest expansion had been long expected and comes after the arrival of Gullivers Travel founder Andrew Bagnall as a shareholder in 2006.

As a result of the merger, Bagnall's stake in the expanded company will be reduced to 29 per cent.

Peter Merton - one of three new directors representing Pharmacybrands' dominant shareholders Cape Healthcare and the Zuellig family - has replaced Liz Coutts as chairman.

Life said yesterday: "The proposed merger represents a rare opportunity to establish an organisation of sufficient strength and credibility to play a major role in reshaping the pharmacy sector in New Zealand.

"The Life board believes that the pharmacy industry needs strong ownership structures, particularly as competition continues to build from other retailers and grocery traders."

The merged company has a stake in 30 stores under various brands and franchising arrangements with 220.

Chief executive Philip Ingram stepped down this year for what he said were private reasons.

Yesterday, chief financial officer Craig Wilson said the merger would extend a broad national footprint.

Life's remaining corporate competitor - private-equity-controlled Radius Pharmacies - said the merger was necessary if Life was to gain scale in the market.

The pharmacy sector is dominated by around 600 independent pharmacies.

Under rules where individual pharmacists must have controlling interests in dispensaries, shareholdings are developed under complex structures.

The Pharmacy Guild said there was a strong wish from many independents not to move to corporate shareholdings.

It said that apart from sales for Tamiflu to treat swine flu, New Zealanders had been wary of illness and had dosed up against coughs and sniffles this winter and that had been good for revenue.

But guild chief executive Annabel Young said chemist shops had also been hurting - like most other retailers in the downturn.

Apart from the recession, pharmacies had been losing cosmetics sales and perfume sales were increasingly going online.

Young said the future of the sector was related to the dispensing fee - the $2.30 paid by district health boards to pharmacies, which is distinct from the $3 paid by consumers.

Last week, DHBs started consulting community pharmacies on the national base dispensing fee pharmacy agreement that ends on February 28 next year.

PHARMACY SHAKE-UP

* About 600 independent pharmacies still dominate the pharmacy sector.
* But more consolidation is expected.
* Life Pharmacy yesterday offered a share swap to take over Pharmacybrands.
* If the merger goes ahead, Life Pharmacy will part-own 30 stores and have franchise arrangements with 220, giving it up to 35 per cent of the pharmacy market.
* Rival Radius Pharmacies has 35 stores.