4 Top U.S. Drug Wholesalers Drop Plans to Become 2 Firms

A week after a federal judge cracked down on their proposed mergers, the nation’s top four drug wholesalers scrapped their plans to combine into two companies.

McKesson Corp., the nation’s No. 1 drug wholesaler, had planned to buy No. 4 AmeriSource Health Corp. for $1.75 billion. The second-largest wholesaler, Cardinal Health Inc., was to acquire No. 3 Bergen Brunswig Corp. for $2.6 billion.

The companies announced Friday morning that the deals were off. The decisions had been anticipated since the previous Friday, when U.S. District Judge Stanley Sporkin issued a temporary injunction against the proposed combinations.

Donald Roden, president and chief executive of Orange-based Bergen Brunswig, said his company thought the merger would have reduced costs and benefited consumers. But it would have been too expensive and the outcome too uncertain to fight the injunction, he said.

The Federal Trade Commission sought to block the deals, arguing that the consolidation would reduce competition in the drug wholesale business and drive up prices.

Wholesalers buy drugs from the manufacturers and sell them to hospitals and pharmacies, also handling inventory and delivery. A wave of consolidation has shrunk the number of wholesalers from about 300 in the mid-1970s to fewer than 50 today.

The FTC said that if the top four players were allowed to combine, the two new companies would end up with 80% of the $80 billion wholesale drug industry and could drive up prices 1%, or $800 million.

The four wholesalers now might seek smaller partners to provide greater geographic distribution, said John Ford, managing director of Bear Stearns & Co. in New York. He also said he disagreed with the FTC’s claim and would have liked to see the mergers proceed.

Dublin, Ohio-based Cardinal Health agreed in August 1997 to buy Bergen Brunswig. McKesson, based in San Francisco, followed a month later with its plan to acquire Malvern, Pa.-based AmeriSource.

Both acquiring companies hoped to expand their already vast retail networks while trimming operating costs. But Ford said all four companies are big enough and profitable enough that they really don’t need partners.

“It would have been a positive thing for them if the deals had gone through, but it’s not a negative that it didn’t,� he said.

Investors appeared to agree. Bergen’s stock dropped slightly Friday, but shares of the other three companies advanced.

Bergen slipped 88 cents to $41.88, while Cardinal Health’s stock moved up $3.19 to $96. AmeriSource shares rose $1.38 to $52.04, while shares of San Francisco-based McKesson gained 81 cents to $80.13. All of the issues trade on the New York Stock Exchange.