Gehe pulls out of €152.4m deal to buy Unicare chain of chemists

A legal battle is likely after the German group Gehe yesterday abandoned a €152.4 million (£120 million) deal to buy the Unicare chain of chemists. The decision led to conflicting claims about the deal, which would have paved the way for Gehe to dominate the pharmacy business in the Republic.

Unicare's owners, who stood to receive €127 million up-front from the purchase and €25.4 million in earn-outs, last night said they would take "the necessary steps" to ensure completion of thesale. Legal advice was being sought and court action considered, sources said.

The company, led by Mr Fergus Hoban, rejected claims by Gehe that the conditions set out in the deal could not be executed.

Gehe claimed in a statement yesterday that the Government's move to open the sector to competition meant the conditions linked to its purchase last October of 29 Unicare outlets were "impossible to satisfy". But Unicare said the contracts provided for the possibility of the form of deregulation which was introduced by the Government on January 31st. The liberalisation removed restrictions on the number of pharmacies in an area which were entitled to manage State contracts. It followed a ruling by the Attorney General, Mr Michael McDowell SC that restrictions to trade introduced in 1996 were ultra vires

Unicare said its contracts with Gehe contained detailed provisions concerning the manner in which the purchase consideration might be adjusted if deregulation occurred before March 31st. Unicare said it asked Gehe on Monday to complete the transaction in the manner provided for in the contracts.

Gehe said it was not in a position to carry out the acquisition but rejected suggestions that the group was walking away from the deal. Its spokesman said: "The implications of the Government decision was that the deal that was there was unimplementable and incomplete."

The group said: "This unsatisfactory and frustrating situation has arisen as a result of the recent amendments to the regulatory regime for pharmacy in Ireland, which have made it impossible in the changed circumstances for the vendors to deliver what had been contracted."

It added: "Following a full review of the implications of these developments, over which Gehe had absolutely no control, the management board has been advised that the transaction cannot be completed."

Gehe's comments indicate it believes cash flows from Unicare outlets will fall due to the deregulation. Its spokesman declined to comment when asked what aspects of the deal were undermined by deregulation.

Last month the managing director of the group's retail pharmacy division, Mr Michael Ward, described liberalisation in the market as "unfortunate". He said suggestions that deregulation would diminish the value of the Unicare acquisition were "hypothetical".

The transaction was cleared by the Tánaiste Ms Harney only 10 days ago after the Competition Authority recommended the sale should proceed with conditions.

In the past year, Gehe has acquired 17 outlets owned by the Crowley and Ryan chains. Its spokesman said those deals were not threatened. He declined to respond when asked whether Gehe had lobbied the Government to reverse deregulation of the sector.

In addition to its pharmacy interests, Gehe owns Cahill May Roberts, the second-largest pharmaceutical wholesaler in the State.

A report last year by the Organisation for Economic Co-operation and Development was strongly critical of the low level of competition in the sector.