Rival Drug Firms OK Acquisition

AmeriSource Health Corp. acquired rival Bergen Brunswig Corp. in Orange in a $3.2-billion stock deal creating the nation’s largest drug wholesaler.

Shareholders of both companies approved the transaction Wednesday, less than a week after federal antitrust regulators decided not to oppose it.

The Federal Trade Commission said the deal probably will lead to lower drug prices for hospitals, pharmacies and other major drug buyers, as the combined company slashes operating costs and negotiates better deals with drug manufacturers by buying in greater volume.

It is unclear whether those potential savings would be passed on to consumers, analysts said.

The combined company, called AmerisourceBergen Corp. and based in Valley Forge, Pa., is expected to reduce operating costs by $125 million, largely by shrinking its national distribution centers from 51 to 30, said Donna Dolan, Bergen’s vice president of finance.

AmerisourceBergen, which is expected to generate annual revenue of $36 billion, also should be able to refinance Bergen’s $1.3 billion in debt on more favorable terms, further strengthening the bottom line, said Seth Teich, an analyst with First Union Securities in San Francisco.

“They’re better off together than either one of them would be alone,” said Teich, who has a “buy” rating on AmerisourceBergen stock, which begins trading today on the New York Stock Exchange under the symbol ABC.

Indeed, the deal seems to have been received warmly by investors. In the five months since the proposed stock swap was announced, the value has surged $900 million. AmeriSource shares have gained 40%, closing Wednesday at $63.50.

Bergen stockholders will receive 0.37 of a share of AmeriSource stock for each Bergen share. Bergen’s stock also benefited, climbing 48% to $23.43. Both stocks traded on the New York Stock Exchange.

The combination represents big victories for both Bergen and AmeriSource. In 1998, the FTC had blocked proposed unions of Bergen with Cardinal Health Inc. and AmeriSource with McKesson HBOC Inc., ruling that consumers would lose if the four largest drug wholesalers combined into two huge firms.

Now, three major drug wholesalers will have the lion’s share of the $100-billion market. AmerisourceBergen’s revenue last year would have accounted for 30.5%, with No. 2 Cardinal Health snaring 27% and McKesson 23.9%, Teich said.

Cardinal shored up its position earlier this year, acquiring Bindley Western Industries Inc.

AmeriSource’s acquisition of Bergen means Orange County loses one of its five Fortune 500 companies.

Bergen officials declined to say how many of the 900 employees at its Orange-based headquarters or 10,500 workers throughout the company would lose their jobs.

Bergen has said in regulatory documents that AmeriSource expects to eliminate “duplicate resources.” But the combined company will continue to have a significant presence in Orange County, said Dolan, the Bergen executive.

AmeriSource’s chief executive, R. David Yost, becomes CEO of the new entity. Bergen’s chairman and chief executive, Robert E. Martini, becomes chairman.

Bergen grew out of a wholesale apothecary that was founded in 1888 in Los Angeles, and was later named Brunswig Drug Co. In 1969, the former Bergen Drug Co. bought Brunswig Drug Co., forming Bergen Brunswig. The company moved to Orange County from Vernon in 1985.