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
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
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
"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
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. …