U.S. Judge Blocks Wholesale Drug Mega-Mergers
A federal judge on Friday granted an injunction blocking two mega-mergers in the drug wholesaling industry, likely killing the multibillion-dollar deals involving two of California’s largest companies.
The Federal Trade Commission had sought the injunction, claiming that Orange-based Bergen Brunswig Corp.’s acquisition by Cardinal Health Inc. and San Francisco-based McKesson Corp.’s acquisition of AmeriSource Health Corp. would squelch competition and force up prices for consumers.
The agency maintained that the deals would have left most of the nation’s wholesale drug business in the hands of two behemoths.
Analysts expect the companies to call off their consolidation plans after nearly a year’s wait for the government to sign off on their deals.
Cardinal and Bergen--the industry’s No. 2 and No. 3 concerns--said Friday they were “extremely disappointed” with U.S. District Judge Stanley Sporkin’s decision to block their proposed $2.8-billion merger. The companies could choose to appeal.
San Francisco-based McKesson, the largest U.S. drug wholesaler, said it was “highly unlikely” that it would proceed with its $1.7-billion acquisition of AmeriSource, the No. 4 company.
But a jubilant Richard Parker, the FTC lawyer in charge of the case, said he was pleased with the ruling. “Consumers and customers will benefit,” he said.
The ruling was announced after the stock market’s close Friday. Bergen shares slipped to $53, off $1; McKesson fell $2.94, to $80.63; Dublin, Ohio-based Cardinal lost $1.58, to $96.06; Valley Forge, Pa.-based AmeriSource rose $1.81, to $76.13. In after-hours trading, Bergen and AmeriSource shares plunged.
In his 72-page opinion, Sporkin noted, “There are enough potential public benefits from the merger that would dictate a further effort by the parties to permit the mergers.”
During the proceedings, however, the companies’ suggestion that they might support the emergence of some competitors in a handful of markets didn’t come close to satisfying the FTC.
The key question was whether the wholesalers’ hospital and pharmacy customers would be stuck having to obtain their drug and medical supplies from the wholesaling giants, or could deal directly with drug manufacturers and store their own supplies.
Lawrence Marsh, a Salomon Bros. analyst who reviewed the ruling, said that while the judge agreed that large hospital and pharmacy groups can do their own warehousing, he wasn’t convinced that small outfits could do so. What’s more, Marsh said, Sporkin wasn’t persuaded that new wholesalers could enter the market fast enough to offset the anti-competitive effects of the mergers.
While the judge’s ruling is disappointing for the companies, it does help dispel the uncertainty that has clouded the drug-wholesaling marketplace in the last year.
