Bergen Brunswig Plans to Buy Immune-System Drug Provider
Bergen Brunswig Corp., underscoring plans to expand its fast-growing specialty drug business, said Monday it will buy for $300 million a Pennsylvania company that specializes in immune-system medications.
The Orange-based drug wholesaler said it will pay about $150 million in cash and $150 million in stock to buy Stadtlander Drug Co. of Pittsburgh from its parent, Counsel Corp. of Toronto.
Stadtlander provides immune-system medications for patients with HIV and others who have received organ transplants. The company also provides pharmaceuticals for about 250,000 inmates in private prisons.
If completed, the deal will give Bergen a chance to expand significantly into a market that is more profitable than its basic wholesaling business, said Don Spindel, an analyst at A.G. Edwards in St. Louis.
That strategy also is being pursued by giant drug wholesalers such as Cardinal Health Inc. and McKesson Corp. after federal regulators blocked plans for Bergen and Cardinal, and McKesson and AmeriSource Health Corp., to combine into two companies.
“They’ve all been making acquisitions that would bring them closer to the drug manufacturer or the customer,” Spindel said.
Stadtlander will add $500 million in annual revenue to Bergen’s specialty drug distribution unit this year, which is on a pace to reach about $800 million. Three years ago, the division had annual sales of $29.7 million. The unit accounts for 7% of Bergen’s operating earnings.
Analysts applauded the move, saying Stadtlander is a good fit with Bergen’s specialty drug unit.
“I obviously like it when companies add businesses that are good for profits and are growing nicely,” said Kristi Thiese, an analyst at Raymond James in St. Petersburg, Fla.
Investors also applauded the move. Bergen shares advanced 75 cents, to $56.06, in New York Stock Exchange trading Monday.
Bergen officials predicted the combined operations of Stadtlander and its specialty drug unit would generate annual revenue of $1.5 billion next year, and about 20% of Bergen’s overall operating earnings.
As part of the deal, Bergen will receive the right to vote all of Counsel’s shares in PharMerica Inc. on matters involving a business combination. Counsel holds a 9% stake in the Tampa provider of drugs and services to patients in nursing homes.
On Monday, PharMerica reported that it lost $127.4 million, or $1.42 a share, on revenue of $289.8 million for the third quarter, ended Sept. 30. The company also hired an investment banker to help it consider various alternatives to enhance its stock value.
PharMerica shares closed Monday at $4.44, down 65 cents from Friday. A year ago, the company’s stock traded at $11.
Bergen agreed to reimburse Counsel $28 million in costs in connection with the tax treatment of the deal.
Some of Counsel’s directors and other investors, who own about 23% of Counsel’s stock, have agreed to vote for the Stadtlander acquisition.
If the deal is completed, Stadtlander would operate as a separate unit of Bergen’s specialty drug company. Bergen also will assume $100 million of Stadtlander’s debt.
The buyout still requires the approval of other Counsel shareholders and government regulators.
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Specialty Combination
Orange-based Bergen Brunswig Corp. will buy Stadtlander Drug Co. and merge it with Bergen’s ASD Specialty Healthcare to expand its reach in the distribution of specialty drugs. How the companies compare:
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ASD Specialty Healthcare Stadtlander Drug Co. Headquarters Dallas Pittsburgh Employees 170 800 Distribution centers 4 3 Specialty areas Oncology, Plasma HIV/AIDS Vaccine Transplants, Infertility Nephrology Mental Health 1997 revenue $606,600,000 $456,900,000
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The Deal
* $150 million in cash, $150 million in stock
* $100-million assumption of Stadtlander debt
* $28 million in tax-related expenses
Source: Bloomberg News
