Bergen Brunswig Plays Hardball in Bid : Takeover: The Orange-based pharmaceutical distributor asks a judge to intervene in an effort to acquire an Alabama competitor.
Bergen Brunswig Corp.’s unfriendly bid to acquire an Alabama competitor just got nastier.
The Orange-based pharmaceutical distributor on Thursday asked a Delaware judge to order its $365-million takeover offer for Durr-Fillauer Medical Inc. to be considered before the Montgomery, Ala., company proceeds with plans to merge with a third firm.
“We think this is a solid, fair offer that deserves consideration,” Bergen Brunswig Vice President Jack Fay said. The lawsuit was filed in Delaware, the state where Durr-Fillauer is incorporated.
At the same time, Standard & Poor’s Corp. announced it was downgrading Bergen Brunswig’s credit rating to Triple-B-Plus, noting that the proposed acquisition could raise the firm’s debt to dangerous levels.
It also said the bid was ill-timed, coming during a period when health stocks in general have been faltering and competition over market share is high.
“Because Bergen’s bid may not be construed as ‘friendly,’ it could face problems in integrating Durr-Fillauer’s business at a time when the industry is going through a period of intense price competition,” Standard & Poor’s wrote in its analysis.
Bergen Brunswig, the nation’s second largest pharmaceutical distributor, made its unsolicited offer to buy Durr-Fillauer’s 11.9 million shares of outstanding common stock on Tuesday after it learned that the company had reached a tentative merger agreement with Cardinal Distribution Inc. of Dublin, Ohio.
The merger, announced June 2, involves a stock transaction and a spinoff agreement valued between $166.5 million and $181.5 million for the drug distribution division of Durr-Fillauer.
Under the proposed agreement, which would require approvals by shareholders and the Securities and Exchange Commission, Durr-Fillauer’s drug and medical supplies distribution divisions would split off.
The drug distribution firm would become a subsidiary of Cardinal, while the medical supplies division would remain under Durr-Fillauer. The deal is expected to be finalized by September.
But Bergen Brunswig, with 1991 revenue of $4.8 billion, said its own offer is a reasonable alternative to the Cardinal deal.
Further, Durr-Fillauer has known for the past 10 years that Bergen Brunswig was interested in hammering out an acquisition agreement in its bid to expand into the South, Brunswig officials said.
“We were quite surprised when we were not invited to bid,” Fay said, adding that he does not agree with Standard & Poor’s assessment that the offer is unfriendly.
“We don’t think it’s hostile,” Fay said. “That’s our attitude. We don’t know if (Durr-Fillauer) thinks it’s hostile or not.”
Durr-Fillauer officials were unavailable for comment.
Cardinal chief financial officer David Berman said that his company’s deal would create a “strategic combination,” benefiting shareholders of both companies.
Cardinal is a major player in the pharmaceutical distribution industry but is smaller than Bergen Brunswig, with 1991 revenue of $1.4 billion. The combined revenue, adding Durr-Fillauer’s 1991 revenue of $950 million, would help Cardinal close in on Bergen Brunswig.
“It supports the long-term growth of both companies,” Berman said. Berman and company attorneys declined to speculate if the Bergen Brunswig lawsuit would scuttle their deal.
Bergen Brunswig attorney Michael Sawdei said that company lawyers appeared before a Delaware Chancery Court judge to block the Cardinal deal, asking for a chance to submit its offer directly to the Durr-Fillauer board of directors.
That board has not responded to the Bergen Brunswig offer, Sawdei said.
“We needed to file this action in Delaware to level the playing field,” said Sawdei, adding that the litigation is “fairly typical” during such unsolicited bids.
Nevertheless, “Bergen Brunswig has taken the position that the board has breached its fiduciary duty to give (Bergen Brunswig’s) bid consideration.”
The suit charges that Cardinal “aided and abetted” Durr-Fillauer’s board of directors in protecting the merger agreement “to defeat the Bergen offer.”
Sawdei said that attorneys for Cardinal and Durr-Fillauer have been ordered back to court July 20 to show documentation relating to the merger agreement. He did not know if the judge would make a ruling on the case at that time.
Meanwhile, Durr-Fillauer’s stock, which jumped 23% on Wednesday, remained unchanged at $27.50 Thursday on the NASDAQ market. Bergen Brunswig stock, traded on the American Stock Exchange, also closed unchanged Thursday at $19.50.
Cardinal stock, also traded on NASDAQ, closed up $1 at $31.25.
Stock analysts said that as the bidding war heats up, Bergen Brunswig, which initially offered $26 a share, will have to raise its bid if it wants to pursue the takeover.
Don Hultgren, an analyst with the Raymond James & Associates Inc. brokerage in St. Petersburg, Fla., said that Bergen Brunswig could afford to up its bid, even though a successful acquisition would further increase its debt.
But adding Durr-Fillauer to Bergen Brunswig is worth the investment, even considering the higher debt.
“It’s attractive from the standpoint that (the South) is a growing market region,” Hultgren said. “It’s a premier property.”
Steven Huffines, an analyst at Sterne, Agee & Leach in Atlanta, said that the Cardinal deal would be in the best interest of investors.
Unlike the Bergen Brunswig offer, the Cardinal merger would be tax-free. And although the per-share value, estimated at about $23, is lower than Bergen Brunswig’s offer, the tax savings to Durr-Fillauer shareholders would make it more attractive.
Whoever ends up with Durr-Fillauer will be inheriting a solid company, analysts said.
“The Durr management has been among the best in the Southeast,” Huffines said. “The management and the board of directors have consistently acted in the shareholders’ interest. I would expect the management to behave the same way in regard to this transaction.”
Leading Drug Wholesalers
(As of Sept. 30, 1991)
* Est. Est. Sales Market Company (in millions) Share 1. McKesson Drug (p) $7,580 23 % 2. Bergen Brunswig (p) 5,000 15 % 3. FoxMeyer (p) 3,185 10 % 4. Alco Health 2,825 9 % 5. Bindley Western (p) 2,300 7 % 6. Whitmire Distrib.** 1,700 5 % 7. Harris Wholesale 1,475 4 % 8. Cardinal Distrib. (p) 1,425 4 % 9. Durr-Fillauer (p) 710 2 % 10. Hunniston-Keeling 500 2 % Total, Top 10 $26,700 81 % U.S. Industry $33,000 --
(p) Denotes publicly traded company
* Includes domestic pharmaceuticals, over-the-counter drugs, health and beauty aids, as well as estimated chain warehouse business.
** Formerly Amfac Health Care
Soures: Companies’ financial reports, Drug Store News magazine, estimates by A.G. Edwards & Sons Inc.
