Potential for Takeover Seen at Bergen as Shareholders Approve Stock Swap

Bergen Brunswig Corp. said Tuesday that its shareholders have approved a controversial stock restructuring program that could leave the Orange-based pharmaceutical products and videocassette distributor vulnerable to a takeover.

Approval of the plan by nearly 61% of Bergen’s stockholders will ultimately transfer control of Orange County’s third-largest publicly owned company from the family that founded it to outside shareholders.

Brothers Emil Martini Jr., 60, and Robert Martini, 57, own more than 97% of Bergen’s Class B stock, which enables them to elect a majority of the company’s directors and control other matters requiring a shareholder vote.

The Martinis’ father, Emil Martini Sr., was a co-founder of the company in 1947.

Under the restructuring plan, the Martini brothers will swap their Class B stock for Class A common stock. After the exchange, they will own only 13.7% of the company’s outstanding stock, and public shareholders will retain the rest. The Class B stock will cease to exist.

Family Will Lose Control

Because each stockholder will be entitled to one vote per share on company issues, including the election of directors, the Martinis will no longer be able to control the company.

The exchange will take place upon the Martinis’ retirement or death, whichever comes sooner. Bergen said Tuesday that the two men have not scheduled their retirements, but the plan will take effect sometime in the next 5 years.

The only potential hitch is a class-action lawsuit by a New Jersey shareholder who opposes the restructuring. Bergen contends that the lawsuit is without merit.

Because the Martinis will wind up with a minority stake in the company, some analysts said that Bergen will become vulnerable to acquisition attempts.

“We’re assuming that at the right price, the odds are pretty good that the Martinis might want to sell their stake in the company sometime over the next 5 years,” said John McRae, an analyst with the New York brokerage of Bear, Stearns & Co.

Takeover ‘a Possibility’

Bergen spokesman John Fay said Tuesday that a takeover is “a possibility. . . . Who knows what things will be like 4 to 5 years from now?”

Analysts said the restructuring plan does not include any restrictions that would preclude such an action.

“Obviously, this company is a potential takeover target,” said Jeffrey Kilpatrick, portfolio manager of the Orange County Growth Fund.

Besides a possible increase in the value of their stock, the restructuring plan offers other advantages to the Martinis, according to analysts. Some said the restructuring is too generous in the number of common shares it awards to the Martinis. Some shareholders apparently thought so, too; nearly 40% of them voted against the plan.

The Martinis’ new Class A shares will trade on the American Stock Exchange, where investor interest could cause the stock to appreciate, analysts said. The Martinis’ Class B stock is not publicly traded.

Dilutes Stock Value

The plan generated some controversy because it dilutes the value of the company’s outstanding common stock. Bergen shares, which increased $2 in the last 2 weeks, closed Tuesday at $26 per share, down 25 cents.

McRae said the common stock price may fall as much as $3 when the restructuring plan is implemented. But he expects any additional decline to be offset by Bergen’s continuing gains in net income and revenue.

For the quarter ended Nov. 30, Bergen reported that its net income was up 54% to $12 million, compared with the same period a year earlier.

Analysts said that corporate raiders could start buying Bergen stock because the company would make an attractive acquisition candidate. Its core business--health care products--is growing and is largely unaffected by economic downturns, analysts said.