Rival Buys Bergen Medical-Supply Unit for $181 Million Cash

Drug wholesaler Bergen Brunswig Corp., attempting to lighten its debt load and refocus its business, agreed to sell its medical-supply distribution unit to rival Cardinal Health Inc. for $181 million in cash, the companies said Monday.

Bergen, which is saddled with $1.25 billion in long-term debt, plans to focus on its pharmacy-distribution business, spokeswoman Barbara Pronin said.

The proposed deal makes sense for both companies, Lehman Brothers analyst Lawrence Marsh said.

By selling the medical-supply unit, Orange-based Bergen can move toward cleaning up its debt-heavy balance sheet and focus on its core pharmaceutical distribution business, which has different customers and products, Marsh said. Bergen’s medical-supply business was cobbled together through a series of acquisitions between 1992 and 1995.

But the acquisition would allow Cardinal, the nation’s second largest drug wholesaler, to expand its medical-supply business into hospitals now served by Bergen and to gain a toehold in doctors’ offices, Marsh said.

Bergen’s medical-supply unit would be acquired by Allegiance Corp., a Cardinal unit that makes and distributes medical, surgical and laboratory supplies. It had annual sales of about $5 billion.

The proposed deal, which requires regulatory approval, is expected to be completed in 90 days, the companies said.

Analyst Seth Teich with First Union Securities said the proposed deal is a step in the right direction for Bergen, “which has hit some rough times.”

Over the past year, Bergen’s unsecured debt has been downgraded three times by rating agencies, largely out of concern over the company’s cash-flow problems. In November, Chief Executive Donald R. Roden was ousted over the company’s disappointing performance.

Bergen has recently undertaken a review of its various businesses and might shed other assets, spokeswoman Pronin said.

PharMerica and Stadtlander, two major acquisitions Bergen has had difficulty digesting, are likely candidates for sale, analysts said.

Bergen bought PharMerica amid much fanfare in April 1999, for $1.1 billion in stock and cash to expand its sales to nursing homes. But Medicare, the federal health-insurance plan for the aged, reduced payments to nursing homes, which hurt PharMerica’s bottom line.

Stadtlander, a specialty pharmacy firm that was purchased early last year for $300 million in cash and stock also has failed to perform as anticipated.

The companies proved to be a drain on the bottom line, as Bergen’s net income for the fiscal second quarter ended March 31 fell by 55% to $17.3 million, or 13 cents a share, as revenue rose 18% to $5.9 billion.

Bergen took on hundreds of millions of dollars of debt to snap up the two companies, which were outside its traditional business, analysts said.

Bergen acquired the companies after a federal judge scrapped plans two years ago for Dublin, Ohio-based Cardinal to acquire all of Bergen Brunswig for $2.6 billion. At the time, the judge also prevented McKesson Corp., the nation’s No. 1 drug wholesaler, from buying No. 4 AmeriSource Health Corp.

Bergen’s stock, which has lost more than 64% of its value over the past 12 months, closed Monday at $5.81, down 38 cents a share. Cardinal shares moved up $1.81 to $67.38. Both stocks trade on the New York Stock Exchange.