BOOTS Healthcare International is a thriving company with some great brand names in growth markets. Richard Baker has decided it is an unnecessary distraction from the business of running a retail chain that seems doomed to shrink as the supermarkets continue to take an ever-greater share of the toiletries market at prices that make Boots wince.

In years to come, the decision may look as short-sighted as the news that Boots is looking to do a sale-and-leaseback on 300 of its smaller stores. It is hard to believe that all these stores will have a long-term future with the group, which has made clear that it would like to reshape its portfolio to include more large out-of-town stores and fewer of the small high street variety. They may almost all make what the company terms “a positive contribution” now, but committing to rental payments for the future saddles the company with a liability that could weigh heavy in the future.

But the company wants the cash now. The combination of the sale of BHI and the sale-and-leaseback allows Mr Baker to promise that there should be plenty of cash winging its way back to shareholders. That prospect ensured that the shares did not fall back as far as yesterday’s other news would surely have sent them, had it not been for the promised payout.

Nevertheless, even with that carrot dangled before them, investors still knocked the stock back, having been knocked themselves by Mr Baker’s fourth profit warning in his brief Boots career. He is acquiring a reputation for delivering bad news, which could be sorely career-limiting unless he can change it fairly rapidly.

Mr Baker’s problem is that the company he joined 18 months ago was not on the brink of collapse. The over-the-counter medicines business was in good health and, although there were plenty of problems in the retail chain, it was still delivering significant profits. Mr Baker prescribed some obvious medicine: make sure that the right products are on the shelves at prices that are not hugely out of line, as they then were, with the supermarkets. It would bring a bill of £100 million, he gave warning, and investors were largely sympathetic.

Other new chief executives take the chance of doing a “kitchen sink job” in their early days, painting the blackest possible picture and storing away funds to be drawn down in emergencies. Honest Mr Baker, however, was not drastic enough with his early assessment of the situation and within a short time was reporting that he had effected what appeared to be a miracle cure.

It is now horribly apparent that it was a bad move to announce in January that Christmas had been brilliant and the future looked rosy. Last month a chastened Mr Baker had to report that customers had vanished and yesterday he was obliged to admit that it really was looking grim and those forecasts had better come back a bit further.

He is still adamant that there is a strong future for the retail business. Its market share in pharmacy and beauty products is now growing again. But the supermarkets will not be letting up the pressure on the toiletry ranges and they are taking every opportunity to move further into pharmacies. Boots, like Marks & Spencer and WH Smith, just has too many stores for a business that is being challenged so hard by the supermarkets.

By contrast Boots Healthcare International is in a market that seems destined to continue growing and, with investment, it could become even more of a force. It will fetch a good price. But a braver Boots might have held on to it.

Back door to harmony ajar

TAX harmonisation will creep in across the EU the back way and slam the door behind it if the opinions delivered yesterday at the European Court of Justice (ECJ) are ratified. Surprisingly, it could cost taxpayers more than the likes of Gordon Brown.

The most eye-catching case, involving Marks & Spencer and BT, relied on the rules of the single European market. The Chancellor cannot allow British companies to offset losses in British subsidiaries for corporation tax but refuse relief for losses elsewhere in the EU.

To discriminate, the European Commission claimed, is to penalise companies for setting up in other EU states. M&S’s French losses, it must be said, were deep-seated and not the pain of starting up, but the point seems clear. On closer examination, it is not. The advocate general also seems to offer tax-gatherers a get-out clause, allowing them in most practical cases to refuse to allow foreign losses. The Court’s final judgment will be crucial.

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