AmeriSource to Acquire Bergen
Continuing a wave of health-care consolidations, AmeriSource Health Corp. said Monday it has agreed to acquire Bergen Brunswig Corp. in a $2.3-billion stock deal that would create the nation’s largest drug distribution company with $35 billion in annual revenue.
The proposed merger is the latest in a series of takeovers of California companies by out-of-state rivals. Bergen had $23 billion in revenue last year, twice the sales of AmeriSource, but has struggled since two previous acquisitions went awry and left the Orange company with a $1.3-billion debt load.
The combined company, to be called AmeriSource-Bergen Inc., would be based in Pennsylvania. AmeriSource’s chief executive, R. David Yost, would become chief executive of the combined company. Bergen’s chairman and chief executive, Robert Martini, would become chairman.
The merger is expected to reduce operating costs by $125 million a year after three years, largely through the consolidation of Bergen’s 30 national distribution centers with AmeriSource’s 22 centers.
Executives declined to estimate how many of the 400 employees at Bergen’s Orange headquarters would lose their jobs, saying the operation will remain a significant regional administrative office.
AmeriSource would issue 50 million shares to Bergen Brunswig shareholders and take on the $1.3 billion in Bergen debt, valuing Bergen at a total of about $3.6 billion. Bergen shareholders would receive 0.37 of an AmeriSource share for each share of Bergen stock.
Shares of AmeriSource closed at $45.20, down $3.28. Bergen’s shares were off 7 cents to $15.87. Both stocks trade on the New York Stock Exchange.
The deal illustrates how consolidation is affecting health care, with national drugstore chains and hospital groups negotiating far harder with distributors than independent pharmacies and hospitals ever could.
With those shrinking margins as a backdrop, Bergen and AmeriSource had discussed a possible merger for years, renewing the talks in December when Yost called Martini.
If the Federal Trade Commission approves the merger as expected by summer, longtime industry leader McKesson HBOC Inc. will drop to No. 2 in sales, with about $31 billion this year, Bergen officials said. The other huge competitor, with a projected $30 billion in revenue, is Cardinal Health Inc., which last month acquired Bindley Western Industries Inc.
The FTC in 1998 blocked proposed combinations of Bergen with Cardinal and McKesson with AmeriSource, ruling consumers would suffer if the four largest drug wholesalers consolidated into two giants.
But Yost and Martini said customers such as pharmacies and hospitals support their merger in the wake of the Bindley-Cardinal deal, believing an AmeriSource-Bergen combination would promote competition by creating three large companies.
“Putting our two companies together always made sense,” Martini said. “The big issue was whether the transaction could get done. We now feel strongly that it can be done.”
The FTC will examine the proposal, said Richard Liebeskind, assistant director of the FTC’s Bureau of Competition.
After Bergen’s merger with Cardinal was blocked, the Orange company snapped up Stadtlander Drug Co. and PharMerica Inc. in an effort to expand beyond its core wholesale business. But the deals plunged the company into the red and left it mired in debt. Chief Executive Donald Roden was fired in November 1999.
Since Martini, who had been CEO from 1990 to 1996, took the reins again as chief executive, the stock has more than tripled its $5 range last year. But at about $17 a share, the AmeriSource offer is still less than half the $37.19 that Bergen shares hit at their peak in January 1999.
