United Drug plans £20m buy on back of rights issue

UNITED Drug is planning to spend up to £20 million on an acquisition, probably in Britain, after raising £12.4 million in a fully underwritten rights issue, said chief executive Mr Jerry Liston.

United Drug and the British company, Unichem, already have a pharmaceutical distribution joint venture in Britain, UniDrug Distribution. This could be the vehicle for a substantial acquisition, Mr Liston stated. It was becoming more difficult to fund latch-on acquisitions in Ireland, he said.

"There are companies out there we would like to buy, but we don't think they're available," he said.

"The rights issue will put us in a very strong position for acquisitions, and we believe that it's better to get the money in now and gear up later when an acquisition comes along," he said.

As well as part-funding a substantial acquisition, the proceeds of the rights issue will be used to fund capital expenditure and reduce debt to a level where United Drug will have nil debt by end 1997 in the absence of an acquisition.

At the end of October, United Drug had outstanding bank loans and overdrafts of £9.9 million, a gearing of around 40 per cent.

In the next year, United Drug will spend £2 million to increase capacity by half at its Tallaght distribution centre and will use £3.65 million for working capital and capital expenditure. Of the proceeds of the rights issuer, £2 million will be used to repay short-term debt.

"The balance of the net proceeds will provide the group with the flexibility to purchase businesses and to expand the group's existing operations organically."

The £12.4 million is being raised through a deeply-discounted rights issue on the basis of one new share for every four at 290p. Taking into account the 8p dividend, this represents a 17 per cent discount on the previous market price.

The total costs of the rights issue is over £520,000 and Davy Stockbrokers is to receive an underwriting commission of 2 per cent, out of which the broker will have to pay sub-underwriting commissions and broker's fees.