Bergen to Take Big 4th-Quarter Write-Off
Bergen Brunswig Corp. said Wednesday that it will take a one-time charge of about $100 million in its fiscal fourth quarter, mostly for the write-down of a business it won in a bitter takeover battle six years ago.
The Orange-based drug distribution giant is writing off $87 million of “goodwill” associated with its purchase of the former Durr-Fillauer Medical Inc. of Montgomery, Ala. Bergen snatched the Alabama firm in 1992 by outbidding its industry rival--now called Cardinal Health--with a $470-million offer.
“You could argue now, six years later, that they must have overpaid by $87 million,” said Richard R. Vietor, a Merrill Lynch analyst.
He considers the write-off one of several steps by Bergen management to wring better results from the company’s medical supplies business.
“Even though the medical company is less than 5% of our overall earnings, these changes will help us restructure it so it can contribute to [overall] earnings growth,” said Donald R. Roden, Bergen’s chief executive, in an interview Wednesday. “
“The growth rate of the medical company was not as high as it had been in years past,” he added.
Among other steps, Bergen said it will lay off 55 lower-level salespeople in the medical unit and close four distribution centers. Employees and operations in Southern California won’t be affected.
Roden said Bergen may seek to expand its medical supplies business through acquisitions or alliances with other companies. He said the company plans to hire high-level marketers who can make pitches to hospital-system executives, while stepping up computerized servicing of customer accounts.
Christopher McFadden, a Wheat First Union analyst, said recent consolidations in the health-care industry have left purchasing decisions in the hands of high-level hospital executives. For Bergen to grow, it will need marketers who can act as consultants to hospitals, offering suggestions on how they might “re-engineer” and boost “economies of scale” in procurement and other areas.
In New York Stock Exchange trading Wednesday, Bergen shares dropped $4.19, to $46.44. Analysts said company officials had hinted weeks ago that Bergen might take a charge.
The $100-million charge is pretax and will be taken in its fiscal fourth quarter ended Sept. 30. It includes $3 million for restructuring expenses associated with the layoffs, reorganizing the sales department and consolidating the distribution centers.
The company also is writing off $5 million worth of outdated software, and another $5 million for expenses associated with its plan to merge with Ohio-based Cardinal Health. Last summer, a federal judge disallowed that merger and another planned by two other drug-industry giants, saying the deals would squelch competition.
On an after-tax basis, the charges add up to $91 million, or $1.78 a share. That amount also reflects an income-tax benefit taken earlier this year in connection with the Cardinal merger.
