Cardinal to Buy Allegiance and Expand Market

Drug wholesaler Cardinal Health Inc. agreed to buy Allegiance Corp. for $5.4 billion in stock and debt, as it seeks to market medical supplies and cost-management services along with pharmaceuticals.

The acquisition deal comes after Cardinal was blocked in July from buying Orange, Calif.-based drug wholesaler Bergen Brunswig Corp. on antitrust concerns. If regulators approve the Allegiance acquisition, Cardinal would sell everything from bandages to management services to drugs such as Viagra at a time when hospitals are looking to deal with fewer suppliers.

Allegiance is the largest U.S. supplier of medical products, distributing more than 300,000 items, but no pharmaceuticals. It also makes surgical and respiratory-therapy products.

The Allegiance acquisition likely won’t face the same types of antitrust problems. Unlike Bergen Brunswig, which was a direct rival of Cardinal in the business of distributing pharmaceuticals to hospitals and pharmacies, Allegiance focuses on manufacturing and distributing medical devices and supplies.

The stock portion of the transaction, valued at $38.47 a share, represents a 67% premium for Allegiance shareholders, based on Thursday’s closing price of 23. Each Allegiance share will be exchanged for 0.415 Cardinal share. Cardinal also will assume $890 million in debt.

The transaction isn’t expected to decrease earnings and could lead to cost savings of more than $50 million within two years of the completion of the transaction, said Robert Walter, Cardinal’s chairman and chief executive.

On the New York Stock Exchange, shares of Dublin, Ohio-based Cardinal fell $8.81 to close at $83.87; Allegiance, based in McGaw Park, Ill., rose $9.44 to $32.44