During the mid-1980s, it had become evident to UniChem’s financial experts, that if UniChem wished both to invest the necessary funds into its branch network and also to seize the opportunities to expand it, which were bound to occur, then easier access to very considerable reserves of finance would be needed.
Although relationships with their bankers had been, and remained, excellent, there was no way that such moneys would ever be available to a co-operative, which could only sell shares to its members. The company needed to be able to sell its shares in the City.
Richard Hannah of the well-known stockbrokers Phillips & Drew, for some time had used Peter Dodd as a sounding board for pharmaceutical matters. During one of these discussions, he offered to perform, at no charge, all of the preliminary groundwork that would be required, if such a project as a UniChem flotation should ever be considered.
Peter Dodd took him up on this offer because he was convinced that the members would never support any motion for conversion. Richard Hannah on the contrary, was sure that once the members had glimpsed the implications of financial gain, that might be thrown in their direction by such a proposal, then nothing could stop it.
Hannah’s company had recently carried out a successful flotation with the National Freight Corporation, and their corporate finance experts were convinced that there was sufficient similarity between the two companies to give the venture a sporting chance.
Although it would obviously be a difficult operation owing to the company’s historic and determined co-operative stance, the Board decided to investigate the possibility. Any successful outcome would need the approval of 75% of the shareholders. The trouble was that none of the non-executive directors, each of whom was a retail pharmacist, could ever remember 75% of any group of retail pharmacists agreeing about anything.
Nevertheless, despite the fact that it was by no means certain that support would be forthcoming, owing to the often-stated members’ strong feelings in favour of co-operative control, the need for large scale finance was paramount, and it was surely worth a try.
In late 1987 it was decided to proceed to see if the shareholders, after careful and total consultation, could be persuaded to agree.
As this consultation would take some time, a target date of 1990 was selected for the conversion to a PLC, with a mass meeting of shareholders to be held in the summer of that year, to make the necessary decision.
Simultaneously, a marketing scheme was devised and introduced whereby members were able to buy extra shares at the nominal price of £1 each, in numbers proportional to their monthly purchases during the run-up period to the proposed flotation date.
A travelling roadshow was put together to get the facts to the membership. The show was to be introduced by the chairman, David Mair, and to feature presentations by Jeff Harris and Bill Hart, respectively UniChem’s finance & marketing directors. Additionally a third presentation was made by Marianne Burton, a senior executive at Phillips & Drew, to explain the way in which the flotation would be carried out.
This mobile discussion group toured England, Scotland and Wales, presenting every known facet of the flotation exercise. These shows were tremendously well attended and a very frank exchange of views took place with the members. Although a considerable concern was expressed about the loss of control of their co-operative, there was also very great interest in the potentially large capital growth of their shares.
A provisional valuation figure had been put on the company by Phillips & Drew . This valuation of not less than £84m, represented around £12 per share. As the members had all paid £1 each for their shares, many of them, metaphorically, licked their lips.
The announcement of the possibility of a conversion, followed by flotation, was first made at the UniChem Convention in Rhodes in 1987. The immediate reaction from the company’s competitors was to deride the provisional valuation. However, Phillips & Drew were a very-well respected member of the London Stock Exchange and nobody was able to shake their stance.
The second, and totally unexpected, response came from a competitor, Macarthys Ltd. In February 1988, having stated that the UniChem flotation would never go ahead, and that in any case the company had been overvalued by the stockbrokers used, they made a hostile takeover bid for the company. Although their derisory offer was virtually ignored by the members, it did serve to underpin the possibility of a flotation, and was useful to the UniChem senior executive, in convincing the shareholders that flotation was a realistic option, if they so chose.
The next, and potentially more damaging action came as a result of competitors all beginning to realise that the marketing scheme associated with the proposal was costing them heavily in lost sales. Accordingly, they forgot their differences and united together, to bring UniChem before the Monopolies and Mergers Commission alleging that the scheme was unfair and against the public interest. After an exhaustive enquiry, their complaint was upheld, despite one member of the commission recording his dissenting view, that the scheme was neither anti-competitive, nor against the public interest.
The Commission’s decision was not applied retrospectively, and the extra shares earned by our members were issued in September 1988. Unfortunately, the defence of the action had cost the company £1.2m, a point made very forcibly to the members.
The last attempts to upset progress to flotation were seen when both AAH Ltd and Macarthys Ltd, separately stated that they would bring actions under article 85 of the EEC Treaty, alleging distortion of competition. In the event Macarthys did so in June 1988, and withdrew the action in December 1989, paying UniChem’ costs. AAH Ltd issued a writ in November, but took no further steps in the action. So ended all opposition efforts to prevent flotation. However, it still remained for the members to be asked to give their formal agreement, at their meeting scheduled for May 1990.