Superdrug owner AS Watson said it was launching a £221.9 million takeover of The Perfume Shop owner Merchant Retail.

Watson, a wholly-owned subsidiary of Hong Kongbased conglomerate Hutchison Whampoa, said it would offer 197p per share for Merchant, 16 per cent higher than the latter's closing price on Friday of 170p.

Directors of Merchant, which also also owns Woodwards department store in Leamington, described the offer as fair and reasonable and said they would recommend it to shareholders.

Watson is the largest health-and-beauty retailer in the world based on the number of its stores.

Its parent company, Hutchison Whampoa, owned by Asia's richest man Li Ka-Shing, has operations in 52 countries and more than 200,000 worldwide.

The Hong Kong-listed group has five core businesses including ports and related services, telecoms, property and hotels, retail and manufacturing, and energy and infrastructure.

Merchant Retail's The Perfume Shop has 114 branches in shopping centres and malls throughout the UK and Ireland.

In the Midlands, it has outlets in Merry Hill, Birmingham, Redditch, Coventry, Shrewsbury and Wolverhampton.

Merchant sold its third business, department store group Joplings - which has four department stores in the Midlands and North-east - for £26.6 million earlier this year.

It said yesterday that fullyear operating profits came in at £ 18.3 million against £17.1 million beforehand.

Watson's UK chain Superdrug said earlier this month that it was spending £75 million on expanding in the UK in a move set to increase competition with rival Boots. Watson's group managing director Ian Wade said Merchant Retail had strong potential and would help it to expand its European operations.

"We look forward to bringing our resources and international experience to grow Merchant Retail's business in the UK," he said.

Merchant's chairman Brian O'Callaghan said it was a natural choice for AS Watson to establish a strong UK presence in fragrances.

A spokesman for Watson said the group could not rule out job losses among Merchant's 2,000 staff in the UK.