Top Ranks Shaken Up at Bergen, PacifiCare
Bergen Brunswig Corp., the nation’s third-largest drug wholesaler, fired Chief Executive Donald R. Roden and said Thursday that its fiscal fourth-quarter earnings plummeted 85%.
Roden assumed the top position at the troubled company nearly three years ago amid great fanfare. Robert E. Martini, chairman and former chief executive, will be interim CEO.
Orange-based Bergen, whose shares have lost nearly 80% of their value since the beginning of the year, has been battered by poor performance at its PharMerica and Stadtlander units, which it acquired this year.
“Bergen had to make this move,” said Michael Krensavage, an analyst at Brown Bros. Harriman in New York City. “Somebody had to pay for the company’s mistakes.”
Operating earnings for the three months ended Sept. 30 fell to $3.95 million, or 3 cents a share, from $26.8 million, or 26 cents a share, a year ago, the company said.
The company also posted $53.7 million of one-time charges at the two acquired companies, resulting in a net loss of $25 million, or 21 cents a share. A year earlier, the company lost $64.2 million, or 63 cents a share.
Revenue climbed 23% to $4.5 billion.
The slumping earnings were of little surprise to analysts, Krensavage said.
The stock closed at $7.63 a share, up 6 cents, on the New York Stock Exchange. The shares traded as high as $37.75 on Jan. 4.
Given Bergen’s recent performance, Roden’s departure was hardly surprising, said Steven Valiquette, an analyst at Warburg Dillon Read in New York. “The general viewpoint among the investment community is that it lost confidence in his ability to manage the company in a strategically positive way,” he said.
But Bergen’s announcement was notable for its strong language, referring to Roden’s “removal” and saying that the board had “terminated” him.
The way Roden was fired means he and the board probably had major disagreements on the direction of the company, analysts said. Roden could not be reached for comment.
Roden, 53, came to Bergen Brunswig in 1995 as chief operating officer and president. In 1997, he became the first chief executive outside the founding Martini family since 1969, when the Martini-controlled Bergen Drug Co. acquired Brunswig Drug Co. and created the current entity. Martini’s father, Emil, founded Bergen in 1947. Robert Martini’s brother, Emil Jr., was the first chief executive of Bergen Brunswig.
Robert Martini could not be reached for comment Thursday. He started with the Bergen Drug Co. in the 1950s and has been on its board since 1962.
In a written statement, Martini, 66, said he will work closely with other company executives to put the company on a better footing.
“The difficult times we have seen are not indicative of Bergen’s core business,” he said.
Martini’s appointment was well received among analysts. “He’s the right person to do the job now,” said David Risinger, an analyst with Merrill Lynch Global Securities in New York City.
The disappointing performance of PharMerica and Stadtlander may have sealed Roden’s fate, analysts said. In April, Bergen acquired PharMerica, the second-largest supplier of pharmacy services to nursing homes. PharMerica’s operations have suffered greatly, analysts said, because its customers are receiving lower reimbursements from Medicare, the federal health-insurance plan for the aged.
Before the recent changes, nursing homes were paid the costs of all medications they dispensed, creating an incentive to dispense lots of drugs. Under the new system, nursing homes receive a fixed-payment per patient, which has had the opposite effect, Warburg analyst Valiquette said. Predictably, PharMerica’s Medicare revenues have fallen off significantly, according to a company press release.
In January, Bergen bought Stadtlander, a specialty pharmacy firm, from Counsel Corp. for more than $300 million in cash and stock. Stadtlander was expected to be a boon to Bergen’s bottom line but has failed to perform as billed.
In October, Bergen filed a lawsuit accusing Stadtlander’s former owners of doctoring financial records to make the unit’s purchase seem more enticing. Counsel has denied the allegations.
For the year, Bergen said it earned $113.5 million, or 95 cents a share, excluding the $53.7 million in charges at the two acquired units. In the previous year, Bergen earned $100.8 million, or 98 cents a share, excluding special charges of $110.2 million. Revenue grew 26% to $17.2 billion.
Bergen’s headaches were compounded recently when several shareholders filed a class action suit in U.S. District Court in Los Angeles accusing the company of failing to disclose financial problems related to Stadtlander.
Some of the company’s problems could arguably be traced back to a federal judge’s decision in July 1998 that blocked plans for Cardinal Health Inc. to combine with Bergen, and McKesson Corp. to acquire AmeriSource Health Inc., forming two giant drug wholesaling companies.
After those deals collapsed, Bergen and McKesson snapped up companies slightly outside their industry to grow. Those purchases have yet to perform as expected.
Bergen’s problems notwithstanding, the pharmaceutical distribution business is “pretty attractive,” said John Ransom, an analyst with investment bank Raymond James in St. Petersburg, Fla. Excluding over-the-counter drugs, pharmaceutical spending is expected to grow an estimated 18% this year to about $100 billion, he said.
Bloomberg News and Dow Jones News Service were used in this report.
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Bergen Brunswig Stock Drop
The company’s stock, which traded above $30 in January, closed Thursday at $7.63.
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Thursday’s close $7.63
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Headquarters: Orange
Employees: 15,000 in U.S. (800 in O.C.)
Founded: 1888
Chief executive: Robert E. Martini (interim)
1999 net income: $70.6 million
1999 revenue: $21.2 billion
Source: Bloomberg News
