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Drug distributors merge
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March 19, 2001: 4:30 p.m. ET
AmeriSource, Bergen Brunswig to combine in $2.4B stock swap
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NEW YORK (CNNfn) - Drug distributor AmeriSource Health Corp. and rival Bergen Brunswig Corp. agreed Monday to merge in a stock swap worth about $2.4 billion.
Under terms of the stock portion of the deal, Bergen holders will receive 0.37 of an AmeriSource-Bergen share for each share of Bergen they own, while AmeriSource shareholders will receive one share.
Based on Bergen's 135.1 million shares outstanding and AmeriSource's Friday closing price of $48.48, the purchase values Bergen at $17.94 a share, or $2.44 billion. The transaction offers a 12.5 percent premium to Bergen's closing share price of $15.94 Friday.
 The new company will have a market capitalization of $5 billion and about $2 billion in debt.
"Bringing together AmeriSource and Bergen makes great sense strategically, financially, operationally and culturally," Bergen CEO and Chairman Robert Martini said. "Our two companies have significant complementary strengths that will allow us to deliver enhanced benefits for shareholders, customers, suppliers and employees."
While the transaction is being dubbed a merger of equals, Valley Forge, Pa.-based AmeriSource (AAS: Research, Estimates) will technically be the acquirer, with its shareholders owning about 51 percent of the combined entity.
The boards of both companies have approved the transaction, which is expected to close by the end of the summer. The purchase still must receive regulatory and shareholder review, the companies said in a statement.
The deal will create a drug-distribution company -- AmeriSource-Bergen Corp. -- with nearly $35 billion in annual revenue, delivering pharmaceuticals and supplies to drug stores, hospitals and HMOs.
Using new accounting rules, the purchase is expected be non-dilutive, before savings and special items, upon closing in the summer, the companies said.
The Wall Street Journal, in a story Monday revealing the deal, estimated its value at $2.4 billion.
FTC scrutiny
The new company will compete directly with Cardinal Health Inc. (CAH: Research, Estimates), which last month completed the acquisition of Bindley Western Industries Inc. to form the biggest drug wholesaler, as well as McKesson HBOC Inc. (MCK: Research, Estimates).
The transaction is expected to draw intense scrutiny from the Federal Trade Commission, which in 1998 successfully blocked Cardinal's proposed purchase of Orange, Calif.-based Bergen (BBC: Research, Estimates) and McKesson's planned merger with AmeriSource. The FTC opposed those deals, arguing it would put too much power in the hands of McKesson and Cardinal.
AmeriSource, which has more than $13 billion in annualized operating revenue, distributes pharmaceutical and related health-care products and services. AmeriSource, with about 21 distribution centers, has a larger presence in the Eastern U.S.
Bergen, with $22 billion in annualized operating revenue, distributes drugs, cosmetics, toiletries and personal health products to pharmacies, HMOs and managed care facilities. Bergen, with 30 distribution centers, has a much bigger presence in the Western U.S.
The merger may lead to the closure of some pharmaceutical warehouses, executives on the conference call said. AmeriSource Chairman R. David Yost said the combined AmeriSource-Bergen will need 30 or less facilities but executives declined to specify which ones would be closed.
The firms expect to sustain a long-term earnings per share growth rate of 20 percent and should realize more than $125 million in annual operating savings by the end of the third year after the purchase closes, the companies said. Combined capital expenditures will be cut by 30 percent, executives on a conference call said.
AmeriSource Chairman R. David Yost will become CEO and president of AmeriSource-Bergen. Robert Martini, Bergen CEO and chairman, will be chairman of the new company.
Goldman Sachs represented AmeriSource while Merrill Lynch & Co. served as financial advisor for Bergen.
Separately, AmeriSource adopted a poison pill Monday to protect against hostile takeovers. The shareholders rights plan will be triggered if one person or group buys or announces a tender offer for 15 percent or more of the company.
AmeriSource shares fell $3.28, or 6.77 percent, to close at $45.20 Monday while Bergen Brunswig dropped 7 cents to $15.87.
--Staff and Wires 
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