British chemist chain Boots is to merge with Alliance UniChem to create a pan-European drugs retailer and distributor with about 3,000 shops and over €19 billion in sales.
The deal will add neighbourhood pharmacies and a big distribution network to Boots's town-centre chemists, which have been losing market share to supermarkets.
Alliance UniChem will get the 156-year old Boots brand for its shops, and reduce its reliance on a drug-distribution market, which is coming under intense price pressure from governments looking to cut healthcare costs.
Shares in both companies opened up strongly on Monday, but several analysts criticised the deal and said the stocks were up on hopes of alternative transactions.
"The deal with Alliance UniChem makes little sense and presents a minefield of supply chain problems, but puts Boots firmly into play. We are therefore raising our recommendation to hold (from sell)," analysts at Panmure wrote in a research note.
Boots told reporters it had had no interest from potential buyers that could spoil the deal.
At 8am, Alliance UniChem shares were up 3.7 per cent at 898-1/2 pence, while Boots was up 7.6 per cent at 655p.
Boots shareholders will have 50.2 per cent of the group when the deal is completed in 2006, with terms of the share exchange to be set just before posting of the merger document.
The deal is being billed as a merger of equals but effectively it is an acquisition of Alliance UniChem, with Boots chief executive Richard Baker taking the helm at the new company, to be known as Alliance Boots, and Boots chairman Nigel Rudd continuing in that role.