American Hospital Supply Selling Unit to Aid Merger

American Hospital Supply Corp. said Friday that it has reached an agreement to sell its Irvine-based McGaw intravenous solution division to satisfy antitrust regulators reviewing its pending merger with Baxter Travenol Laboratories.

Although American did not identify the buyer beyond noting that it was “a major health-care subsidiary of a multinational Fortune 100 company,” analysts said speculation has centered on Kendall Co., a division of Colgate-Palmolive.

American said it had signed a letter of intent outlining the terms of sale. The company would not say why it declined to identify the buyer.

The sale helps Baxter Travenol clear a major hurdle in its proposed $3.8-billion purchase of American Hospital Supply.

The Justice Department’s antitrust division had said the sale of the McGaw division would be necessary because it controls an estimated 15% of the market for intravenous solutions, while Baxter Travenol controls an estimated 45%.

The antitrust division has also recommended that American sell its Haemonetics product lines and a portion of its plastic gloves operations. Baxter Travenol has already divested its cardiopulmonary product line in a sale to Minnesota Mining & Manufacturing in order to satisfy antitrust objections.

Separately, Baxter Travenol said Friday that the Securities and Exchange Commission has cleared its registration statement on the proposed merger. The statement is scheduled to be mailed to stockholders of both corporations on Oct. 18, with stockholder meetings to vote on the merger set for Nov. 22.

In an official announcement of the sale, American Hospital and Baxter Travenol said the divestiture was necessary to meet recommendations from the antitrust division of the Justice Department, which has been reviewing Travenol’s proposed takeover of American Hospital Supply. A full antitrust review of the merger is expected to be completed in late October.

The sale apparently dashes the plans of a group of 35 senior McGaw managers and Newport Beach-based investment banking firm of Kelso & Co. to purchase the company in a leveraged buy-out.

Randall Huyser, a health-care analyst with Montgomery Securities in San Francisco, said American Hospital’s decision not to sell the division to its senior managers will probably help the company, since a larger firm has more money to spend building its operations.

“McGaw is probably better off in the hands of a big company because this is such a rough-and-tumble business,” Huyser said. “Intravenous solutions is a very price-sensitive business with low profit, and McGaw has never been a strong competitor.”