Bergen Brunswig Corp., one of the nation's largest drug distributors, announced plans Monday to merge with Miami-based Ivax Corp., the largest maker of generic pharmaceuticals, in a $1.4-billion deal aimed at selling more lower-cost drugs to consumers.
Ivax shareholders would own 56% of the new combined company, which will be called BBI Healthcare Corp. and be based in Miami. However, analysts saw Orange-based Bergen as the marketing powerhouse behind the merger, which should yield higher profitability for the new firm.
"Generic drugs distribution is the single biggest profit center for wholesalers [such as Bergen], and generic makers find doing business with wholesalers a nightmare," said Hemant Shah, an analyst at HKS & Co. in Warren, N.J. "This puts the two together."
Executives said the combined company, which will retain a major presence in Orange County, makes sense because it eventually may allow the combined company to cut costs by trimming staff, improving margins, and boosting sales amid intensifying pressures throughout the health-care industry to cut costs.
Ivax stock tumbled more than 22% and Bergen shares fell nearly 16%, indicating that investors and analysts are skeptical of the benefits of the first such merger between a major drug manufacturer and a large wholesale drug distributor.
"The deal makes sense theoretically, but has a lot of practical problems," said analyst James Flynn at Furman Selz in N.Y.
He questioned, for instance, whether the combined company would have trouble obtaining products from generic makers other than Ivax, and if it would have trouble selling to pharmacies outside Bergen's network.
While consumer groups, pharmacists and health maintenance organizations said they hope that the Bergen-Ivax merger will lower costs, they're not counting on it.
Shareholders of Ivax, which has recorded sizable losses recently, would receive less than the stock's price on Friday. And Bergen Brunswig, which has a reputation for being a solid, steady operator, would be teaming up with a money-losing business whose investors will own 56% of the surviving company.
Bergen Brunswig stock, which hit a 52-week high Oct. 24, fell $5.125 per share Monday to $27.625 in trading on the New York Stock Exchange. Ivax stock slumped $3.375 per share to $12.50, a 52-week low, on the American Stock Exchange.
Bergen Brunswig Chairman Robert E. Martini attributed the stock drop to the unusual nature of the deal.
"It's a breakthrough strategy that hasn't been done before," he said. "It'll take some time to convey the image to public shareholders that we believe that if we can increase sales, reduce costs and increase margins, the profitability" for the combined company will exceed the earnings of the individual businesses.
He said Ivax shareholders will end up with a larger share of the combined company because Ivax's market value exceeds that of Bergen.
Under the deal, Bergen chairman Martini and Ivax Chairman Phillip Frost will share power as co-chairmen of the new company, while Bergen President Donald R. Roden becomes chief executive officer. Roden was scheduled to become CEO of Bergen on Jan. 15.
The new company would have combined annual sales of about $12.5 billion, and employ more than 12,000 people. Ivax has 7,893 employees and Bergen Brunswig 4,770.
Martini indicated that the combined company would likely sustain--and even boost--employment at its corporate offices in Orange as well as at distribution centers in Corona and Valencia. The Orange facility employs 650, while the Corona and Valencia facilities each employ about 150, he said.
Ivax employs 1,400 people at a factory in Irvine.
As further evidence of Ivax's recent struggles, the company also announced Monday that it lost $178.7 million in the third quarter on revenue of $222.7 million.
The merger plan marks the second major announcement by Bergen this fall. In September, it named 50-year-old Roden to succeed Martini as chief executive, effective Jan. 15.
Robert Martini said Ivax and Bergen have talked for several years about some type of partnership. When Ivax, a Bergen supplier, was underbid by a competitor and saw its annual sales to Bergen slip this year to $40 million from $50 million, the two companies began talking in earnest about a possible merger, Martini said.
Consumer groups said they're taking a wait-and-see approach to the deal.
"Drug prices continue to be a major problem, particularly for the elderly," said Greg Marchildon of Families USA, a consumer health-care group in Washington. "I'm not sure that any merger, even one as unique as this one, is going to affect prices."
Other health-care officials said they worry prices may rise.
Worse than possible price hikes, some say, is the increasing influence that for-profit companies far removed from the doctor's office are having on the once-private nature of doctor-patient relationships.
"A doctor needs to decide what procedures to prescribe, what treatments are necessary, what drugs to prescribe, based on what's best for the consumer and what's an affordable price," said Dr. Sidney Wolfe, director of Public Citizen's Health Research Group in Washington.
"Once you replace that with centralized decision-making--like selling Ivax drugs only--you're essentially stripping the decision-making in a profound way from the doctor-patient relationship," he said.
Hospital officials also said they have reservations about the merger, which must be approved by shareholders and regulators.
Bergen and Ivax probably can deliver at a lower cost, said Jim Lott, senior vice president at the Healthcare Assn. of Southern California, a trade group. "But the question is will they?" He doesn't believe the merged company will pass on any savings and, instead, will hike prices.
Also contributing to this report were Times staff writers James S. Granelli and John O'Dell.
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BBI Healthcare Corp. at a Glance
* Status: New firm formed by the merger of Ivax Corp. and Bergen Brunswig, pending regulatory and shareholder approval
* Headquarters: Miami
* Chief executive officer: Bergen Brunswig President and CEO-elect Donald R. Roden
* Co-chairmen: IVAX CEO Phillip Frost and Bergen Chairman Robert E. Martini
* Employees: Estimated 12,000 worldwide
* Business: Pharmaceutical manufacturer and distributor
New Chief Executive
* Name: Donald R. Roden
* Age: 50
* Background: Held sales and marketing positions at various pharmaceutical firms until 1975, when he became group vice president at Health Applications Systems, a Bergen Brunswig division. Founded Pracon Inc., a health-care management consulting firm, in 1977. Sold Pracon to Elsevier Ltd., an international publishing company, in 1989. Served as executive with Elsevier's North American operations until 1993. Rejoined Bergen Brunswig in 1995 as president and chief operating officer. Named CEO-elect in September to replace Robert E. Martini upon retirement, but instead will become CEO of BBI Healthcare Corp. as a result of the merger.
* Education: Bachelor's degree in business administration, University of Wisconsin; MBA in pharmaceutical marketing, Farleigh Dickinson University (New Jersey)
* Personal: Married, two grown children
Sources: Bergen Brunswig; Researched by JANICE L. JONES / Los Angeles Times