Cardinal Health Joins Consolidation Wave of Drug Wholesalers

Article excerpt

With many of their hospital, pharmacy and physician customers forging alliances that enhance their bargaining strength, drug wholesalers have been consolidating, too. In the latest deal, Cardinal Health agreed late Sunday to buy Bergen Brunswig for $2.41 billion in stock and to assume $386 million of debt. The purchase would create the nation's biggest drug wholesaler, with 31 percent of an annual $64 billion market.

Investors were delighted, although analysts said the price was high. Shares of both companies surged Monday on the New York Stock Exchange.

Bergen Brunswig jumped 40 percent, or $12.0625, to $42, a closing high. Cardinal shares touched a 52-week high before retreating slightly, ending up 5 percent, or $3.25, at $65.5625. Robert Walter, chairman and chief executive of Cardinal, said his customers would also support the merger, based on projected savings to the two companies of "at least $100 million" by 2000, and, he said, a history of sharing such gains through lower prices. The deal makers hope that the prospect of lower costs for products will outweigh antitrust concerns when the Federal Trade Commission reviews the agreement. Lawrence Marsh, a health care analyst at Salomon Brothers, said Cardinal was paying "a premium, bear hug price, which made it very difficult for Bergen to say no." But he said that the result would be "a very attractive combination." Cardinal, based in Dublin, Ohio, is the second-biggest drug wholesaler, behind McKesson Corp., which has about 25 percent of the field. Bergen Brunswig ranks third. Cardinal and Bergen are about the same size, with about $10 billion each in annual drug revenue. Cardinal gets $1 billion more from service units, including Pyxis automated drug dispensers, and management contracts at 400 hospital pharmacies. Bergen has $1 billion in sales of medical and surgical equipment. For the 12 months that ended on June 30, Bergen reported earnings of $82.6 million before one-time charges; Cardinal earned $221 million, also before one-time charges. Analysts said the number of drug wholesalers dwindled to 55 last year from 139 companies in 1980. In a complex marketplace, wholesalers compete with mail-order pharmacies and with their own suppliers -- drug makers who ship directly to chain-store warehouses. The wholesalers are also the conduit for discount contracts between manufacturers and hospitals or health maintenance organizations. Neal Dimick, executive vice president of Bergen, said the total market was $80 billion annually, of which wholesaler companies had about 80 percent, or $64 billion. By that reckoning, Cardinal and Bergen say that combined, they would have only 25 percent of the entire pharmaceuticals market. Cardinal, a stock market favorite, was created in 1979 by Walter and has been growing through acquisitions. …