Baxter May Lay Off 6,500 in Merger With American
As the merger of Baxter Travenol Laboratories and American Hospital Supply Corp. became official on Monday, officials were hinting that the newly created medical supply firm might lay off up to 6,500 workers over the next four years in order to stay competitive.
The $3.8-billion merger, approved Friday by a majority of the shareholders of both companies and by the Justice Department’s antitrust division, creates a mammoth new health-care concern with 60,000 employees. Baxter Travenol, the suburban Deerfield, Ill., manufacturer into which American Hospital will be folded, had 1984 revenue of $1.8 billion. American, a distributor based in nearby Evanston, had revenue of $3.4 billion last year.
Figure Still Up in the Air
John H. Kehl, director of financial relations for Baxter, a manufacturer of kidney dialysis equipment and intravenous feeding solutions, said that as many as 6,500 workers may lose their jobs through layoffs and attrition over the next four years. However, he said, “there is no specific head count” and the two companies haven’t “gotten very specific about future operations” yet.
Many analysts agree that Baxter and American Hospital, which makes or distributes about 130,000 medical products, will eventually have to trim their combined work force in order to stay competitive in today’s leaner $400-billion-a-year health-care industry.
Recently modified Medicare regulations that impose ceilings on the amount of money that the government will pay for hospital care, as well as less generous corporate health insurance plans, have discouraged long hospital stays. Thus the demand for medical supplies is not as robust as it once was.
‘Humongous’ Task Ahead
“The job of integrating these two companies is so humongous,” said Ruth Alon, a health-care analyst for Montgomery Securities in San Francisco. “In the long run, of course, they (Baxter and American Hospital) will be looking at how to consolidate their distribution, marketing and manufacturing operations.”
Alon said she doesn’t expect the merger to have any immediate impact on consumers’ hospital bills. She added that the the long-term impact on consumers will depend on how the merged company--now the largest in the field--decides to pursue the key intravenous feeding solution market, which is now dominated by Baxter and Abbott Laboratories Inc. Baxter could drastically cut prices, Alon said, and grow by taking market share from smaller companies in the intravenous market, or it could capitalize on its size and increase prices for the hospitals it already supplies.
That flexibility was underscored Monday by the leaders of the new company. Former Baxter Chairman Vernon Loucks Jr. will be president and chief operating officer of the newly merged company, and Karl Bays, who was chairman of American Hospital, will hold the same title with the new entity.
