Consolidation normally holds out the prospect of improved profitability. The opposite is true in the UK mortgage market. Nationwide's acquisition of Portman propels the combined building society into the number two slot in the UK mortgage market with a share of 11 per cent. Because both are mutuals, any excess profits are returned to members in the form of lower pricing, which means the new, larger entity could intensify downward pressure on pricing. They are happy to live with a return on equity a few percentage points lower than their bank competitors.
When Richard Baker told investors in March that he was determined “to put the chemist back in Boots”, no-one had an inkling that a £7bn merger was the way the softly spoken chief executive intended to do it. But the tie-up between Boots and Alliance UniChem will achieve just that – and a lot more. Overnight, the proposed ‘merger of equals’ will make Boots, a retail chain of 1,400 health and beauty stores in the UK, a serious operator in the pan-European pharmaceutical wholesale and retail market.