Bergen to Buy PharMerica for $820 Million

Moving to boost profit by getting closer to patients, Bergen Brunswig Corp., the nation’s third-largest drug wholesaler, said Monday that it plans to buy one of its big customers, PharMerica Inc. of Tampa, Fla., for $820 million in stock.

PharMerica, which provides drugs to 500,000 patients in nursing homes and other long-term care facilities, would give Orange-based Bergen a foothold in a market that promises higher margins than its basic drug distribution business, company executives said.

Under the deal, Bergen Brunswig would give PharMerica shareholders 0.275 Bergen Brunswig share for every PharMerica share. Bergen also would assume $580 million in PharMerica’s debt.

Analysts applauded the move, saying the acquisition gives Bergen a 20% chunk of a market that is expected to grow as the population ages. However, Bergen investors weren’t enthusiastic.

Bergen shares slumped $5.50, or 17%, to close at $27 on the New York Stock Exchange, while PharMerica shares rose 56 cents to close at $7.06 on Nasdaq.

In a teleconference with reporters Monday, Bergen Chief Executive Donald Roden said the company could wring profit from PharMerica by streamlining its 168-pharmacy network and hooking it up to a common business information system. He said the merger would eliminate one step from the distribution of drugs to nursing-home patients by eliminating PharMerica as a middleman distributor.

Roden declined to comment on the stock’s decline.

Analyst Kristi Thiese at Raymond James in St. Petersburg, Fla., said the acquisition makes good business sense. “Now, it’s like having two distribution supply chains when we only need one,” she said.

Bergen executives also stressed that the deal should benefit its network of independent retail pharmacies--a group of business customers that strongly objected to the company’s now-dead proposal to merge with its wholesaling rival Cardinal Health Inc.

This time, Bergen Brunswig executives promised that some retail pharmacies would have an opportunity to serve nursing home patients in rural areas too expensive for PharMerica to serve directly.

John Tilley, a former Bergen customer who owns three independent drugstores in Downey, predicted that other independents will grumble about the PharMerica deal but probably won’t raise a serious protest.

Other observers discounted the possibility that the deal might raise antitrust concerns by government regulators who recently blocked Bergen’s effort to merge with Cardinal Health. At the same time, the Federal Trade Commission also blocked a similar merger of industry giants McKesson Corp. and AmeriSource Health Inc.