PJ Online | News feature: Converting a friendly society in 2002; Numark's plans meet little opposition
The Pharmaceutical Journal
Converting a friendly society in 2002; Numark's plans meet little opposition
The conversion of pharmaceutical wholesaler Numark from an industrial and provident society to a public limited company seems to be a far smoother process than when UniChem did the same thing 12 years ago. Michael Thompson (on the staff of The Journal) considers why
Twelve years ago, on 20 May 1990, pharmacist members of the industrial and provident society UniChem, which had been a co-operative pharmaceutical wholesaler for 52 years, voted overwhelmingly to convert the society to a public limited company and float it on the Stock Exchange six months later. In doing so, they changed shares they had bought for ?1 each, which could not be traded and would never increase above their nominal value, into shares worth ?12.60.
The two-year run-up to the conversion and flotation was marked by controversy and acrimony between those pharmacists who saw the chance to make personal gains from a company that they owned, albeit in the legal guise of members, and others who claimed to value the co-operative tradition above all else. In the event, 96.1 per cent of UniChem's customer-members voted with their wallets and the company was set on the path it follows today.
Now Numark, more recently established as a friendly society, next week is also seeking its members' approval to become a plc. Its plans do not seem to have caused a stir in the profession, so what is the difference between the two companies' plans?
In essence, what Numark is proposing is similar to the UniChem scheme. But David Wood, Numark's managing director, says that there are some important differences. Principal among these is pharmacy ownership. When UniChem converted, a stated aim was to raise funds to build its own chain of community pharmacies. This it has done, being the owner of Moss, the third largest pharmacy chain in Britain with more than 600 pharmacies.
In contrast, Numark wants to raise money so that it can become part-owner in independent pharmacies in the expectation that they will become fully independent when their pharmacist co-owners can afford them.
"We believe in the strength of independent pharmacies," Mr Wood said. "Pharmacists who are based in local pharmacies day in, day out, who know their customers, are building a business for themselves. We think it is a unique strength."
The plan is to build a group of pharmacies, each of which is run by a pharmacist with a 49 per cent share in the business. These pharmacies will be refitted like Numark concept stores. After five years, the pharmacists will be able to buy out Numark's 51 per cent share at a discount provided they sign five year trading agreements to support Numark programmes. If pharmacists do not want to buy Numark's share of the businesses, they can continue in joint ownership or sell their share to Numark. Where that happens, Mr Wood says that Numark will put in another joint owner rather than seek to keep the business for itself.
"We want to see pharmacists running pharmacies, incentivised by equity," he said.
Another key difference to the UniChem scheme is that Numark will only introduce a share incentive scheme after the company becomes a plc.
In the two years before conversion, UniChem launched a share incentive scheme designed to win market share from other wholesalers. Mr Wood, then an employee of wholesaler Macarthy, was involved with developing a complaint to the Monopolies and Mergers Commission, which subsequently ruled that the share scheme was anticompetitive and against the public interest. The share scheme was halted, but not in time to save Macarthy. It was so successful as a business winning manoeuvre that David Wood says it was the death knell for Macarthy as a pharmaceutical wholesaler.
The share scheme also led to a ruling by the Registrar of Friendly Societies that UniChem was no longer a bona fide
Neither ruling really shook UniChem's plans because the MMC said that there was no way of forcing the company to return business to other wholesalers, and that people who had gained additional shares could keep them. Similarly, the Registrar of Friendly Societies said that the best way of dealing with UniChem was to approve its conversion timetable, rather than cancel its registration as a friendly Society.
Another feature of the prelude to UniChem's conversion was the immediate expulsion of members and cancellation of their shares if their monthly purchases fell below a threshold in the wholesaler's rules.
Mr Wood said that it was difficult to make a comparison between Numark's planned conversion and that of UniChem.
"The two are different processes," he said. "They had six months between conversion and flotation; we're looking at two to three years. They were accountable to the Registrar of Friendly Societies, we are accountable to the Financial Services Agency."
Since announcing the conversion plan, Numark has been holding roadshows for members around the country. Mr Wood said: "We're very pleased with the response."
He admitted that there are "one or two" people who do not agree with the proposals and said that their objections centred around a desire to see Numark continue as a mutual business.
Like UniChem, substantial financial gains may be available to Numark members on conversion. Most members hold ?900 in Numark shares. They can increase this shareholding to a maximum of ?19,200 on conversion and can apply to buy the shares of other members who choose not to take up their full allocation. To prevent anyone gaining an unduly large say in the company, the maximum holding any individual can have at conversion is 15 per cent and anyone who subsequently buys shares from other members can never have more than a 20 per cent share of votes, no matter how large their shareholding.
Numark is now moving close to the formal process of getting its members to approve the conversion process.
Approval demands a 75 per cent majority at a special meeting to be held on 5 July. This then has to be confirmed by a simple majority at a second special meeting on 22 July.
Citation: The Pharmaceutical Journal URI: 20007153
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