UniChem (Hansard, 17 May 1989)

§ Mr. Maude

The report is published today. The Monopolies and Mergers Commission concluded that UniChem has arrangements for the allotment of shares in its capital which are anti-competitive and against the public interest.

I accept the MMC's findings and conclusions. As from tomorrow, 18 May 1989, purchases from UniChem by its members will not be able to contribute towards the allotment of shares in its capital. A notice will shortly be published describing in detail the order I propose to make with a view to achieving this result.

UniChem is an industrial and provident society whose main activity is the wholesale supply of pharmaceutical goods. The Monopolies and Mergers Commission was asked to investigate UniChem's allocation of shares prior to its proposed conversion into a public limited company in mid 1990. UniChem had decided to allocate a large 240W number of shares at £1 per share nominal value (refundable if members left the society) to new and existing members of the society. The allocations to be made on the basis of the levels of business placed by them with UniChem in the period up to May 1990.

Because UniChem is a profitable business with a large share of the market, the value of shares on conversion is likely to be well in excess of the nominal value. Partly as a result of this prospect of considerable capital gain, UniChem has attracted both new members and additional business from existing members, and increased its market share.

The commission found that the arrangements enabled UniChem to increase market share by means other than price reduction or improved quality of service, and that competitors were not likely to be able to compete using similar arrangements, or, having regard to the low margins prevailing in the industry, through price reductions or other forms of discount. The commission concluded that UniChem's arrangements had distorted competition and were therefore anti-competitive. The commission went on to conclude that the arrangements were also against the public interest and, if the arrangements were allowed to remain in place, would continue to be, as leading to reduced competition in the supply of goods to retail pharmacies, reduced choice of wholesalers, and reduced quality of service.

The commission also concluded that measures should be taken to prevent further damage to the wholesale pharmaceutical market, and recommended that any shares to be issued by UniChem in future should not be related to purchases from UniChem made after publication of the report. Nor should UniChem change the minimum level of turnover required for membership, or the number of shares to which new members must subscribe.

I accept the commission's recommendations. I intend to make an order which will prohibit UniChem Limited from continuing to operate its "share scheme", under which shares will be allotted by reference to the amounts of goods and services acquired from UniChem, except in respect of allotment by reference to goods and services acquired by 17 May 1989. UniChem may not make or carry out any agreement in respect of allotment by reference to later acquisitions of goods or services.

UniChem must also hold its minimum purchase qualification for continued membership to £3,000 per month and its initial share subscription qualification to 200 per premises, up to a maximum of 1,000.