Pharmacy merger move backed

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Life Pharmacy shareholders have backed their company's plans to take over Pharmacybrands, creating the country's biggest chain of chemists, in the face of increasing competition from The Warehouse.

Life Pharmacy will launch a formal offer under the Takeovers Code for 100 per cent of Pharmacybrands. If successful, it would create a combined group of 255 stores under the Life Pharmacy, Life Metro, Life Outlet, Care Chemist, Unichem and Amcal brands.

Life Pharmacy estimates New Zealand has 1190 pharmacies, with 544 stores being part of chains.

Chairman Mark Vuksich told shareholders that a bigger pharmacy group would be in better shape to "represent and defend" pharmacies against challenges from the likes of discount retailer The Warehouse.

Combined, Life Pharmacy's 52 stores and Pharmacybrands, which owns 203 stores, would be in a stronger position in an evolving market.

"In particular, with The Warehouse committed to rolling out pharmacies throughout New Zealand we need to ensure we are well-established and ready to represent and defend the pharmacy channel in this country," Mr Vuksich said.

The Warehouse had said after the demise of its Extra grocery experiment that it would move strongly into the pharmacy business.

The merger was a case of "circling the wagons" to build a more solid position in a changing market, Mr Vuksich said.

The Warehouse has six in-store pharmacies, two in Auckland and one each in Whangarei, Hamilton, Nelson and Blenheim.

Four more are planned for the 2009 financial year but The Warehouse declined to comment on any additional plans.

Life Pharmacy said 84 per cent of shares were voted either by proxy or in person at Monday's meeting, with 99 per cent of votes supporting the merger and share buyback scheme.

Pharmacybrands shareholders will be offered 39.783 fully paid ordinary Life Pharmacy shares in return for every Pharmacybrands share. The offer values Pharmacybrands at $20 million, or $19.55 a share.

The deal values Life Pharmacy at $29.1 million, or 49.1 cents, incorporating a buyback of up to 8.2 million partly paid shares at 32c each.

Andrew Bagnall's LPL Trustee Life Pharmacy's major shareholder and Cape Healthcare, Pharmacybrands' biggest shareholder, will each have stakes of about 26.9 per cent in the combined group.

Ebos director Peter Merton and the Zuellig Group own Cape Healthcare. Other Life Pharmacy shareholders will hold 32.3 per cent and the remaining Pharmacybrands shareholders 13.8 per cent of the merged group.

Mr Bagnall will be a director of the merged company. Mr Merton is likely to be chairman.

John Bolland, an associate of Mr Bagnall, said the Gullivers Travel Group founder was happy to reduce his 50 per cent holding in Life Pharmacy to less than 30 per cent of the combined group to help ensure its growth.

The two men would not rule out further investment in the future.

Mr Bolland said Mr Bagnall's experience in the travel industry would be invaluable for the new company, which would look to combat any market challengers by positioning itself as a service provider within the health sector rather than an out-and-out retailer.

- © Fairfax NZ News