Drug wholesaler AmeriSource to acquire Bergen Brunswig

Monday, March 19, 2001

VALLEY FORGE, Pa. (AP) -- AmeriSource Health Corp. is acquiring Bergen Brunswig Corp. in a $2.4 billion deal that will combine two of the nation's largest drug distributors.

The agreement, approved by both boards and announced Monday, will create a drug-distribution giant with nearly $35 billion in annual revenue, selling pharmaceuticals to businesses such as drug stores, hospitals and health-maintenance organizations.

The new company would compete with McKesson HBOC Inc. and Cardinal Health Inc., which last month acquired Bindley Western Industries Inc. to form the biggest drug wholesaler.

AmeriSource, based in Valley Forge, will own about 51 percent of the combined entity, to be named AmeriSource-Bergen.

It will also assume $1.3 billion in debt as part of the deal.

Shareholders in Orange, Calif.-based Bergen Brunswig will receive 0.37 of a share of the combined company for each share they own, while AmeriSource shareholders will receive one share.

At Friday's closing prices, the deal would give Bergen Brunswig shareholders a 12.5 percent premium. AmeriSource closed at $48.48 on Friday on the New York Stock Exchange while Bergen finished at $15.94.

The transaction may be scrutinized by the Federal Trade Commission, which in 1998 blocked Cardinal's proposed purchase of Bergen and McKesson's planned merger with AmeriSource.

The FTC argued the deals would put too much power in the hands of McKesson and Cardinal.

 

 

 

 

 

Will FASB Kill the AmeriSource-Bergen Brunswig Deal?

Bergen CFO Dimick tells CFO.com why the new merger rules are essential.

Forget about regulatory approval. This time, FASB could decide a deal’s fate.

The $2.4 billion merger of AmeriSource Health Corp. and Bergen Brunswig Corp. announced on March 19 is the first to be contingent on the issuance of the Board's new accounting standards for business combinations, a fact overlooked by most news accounts.

The wholesale drug distributors say they expect to close the merger by the end of summer, following approval by the Federal Trade Commission— which at this point is clearly not guaranteed--and, of course, shareholders of both companies.

Bergen Brunswig’s CFO Neil Dimick will become CFO of the new entity, which will have about $35 billion in annual operating revenue.

However, the two companies also insist they won't close the deal until FASB finalizes its guidelines for the revised Exposure Draft: “Business Combinations and Intangible Assets – Accounting for Goodwill.”

"The deal was conditioned on FASB's changes being confirmed," says Robert Willens, Lehman Brothers's accounting and tax analyst. "That's the first time we've seen that. If FASB doesn’t take action, that deal doesn’t happen.”

Why? Because the transaction price was computed as if the new rules regarding pooling and intangible assets were already in effect.

"We've had our respective accounting advisors, Deloitte & Touche and Ernst & Young, review all the exposure drafts, and they've done evaluations of the effects of that exposure draft as if we were a combined entity," Dimick tells CFO.com.

According to a statement released by the two companies when the deal was announced, there will be approximately $10 million in annual expenses related to purchase accounting adjustments. However, these adjustments will be more than offset by the elimination of $23 million per year of goodwill amortization for the combined company, provided FASB's new rules go into effect.

The pro forma analysis suggests how intangibles would be allocated versus goodwill. It is an interpretation of the rules in the revised Exposure Draft on treating intangibles, Dimick says. "We went through respective balance sheets allocating certain values," he adds. "We've made acquisitions [in the drug industry] in the past so we have a good feeling of how the valuation would have been.”

FASB is widely expected to finalize the Exposure Draft and end the pooling method by June 30.

Just in case it doesn't, however, Dimick says the companies have a backup plan. "If FASB doesn't put the new rules in place, we will have the alternative to meet to decide whether we want to wave the contingency," he says. “That very much would be the case. It’s going to take both parties.”

FASB realizes the concerns that acquisitive companies have about the Exposure Draft thanks in large part to a fast comment period. “We have about 200 letters,” says Tim Lucas, FASB director of research and technical analysis. “We are in the process of getting those analyzed.”

Re-deliberations on the Exposure Draft begin April 11.

“Assuming the comments don’t require us to go back to square one and invent something new, we’re still operating under the assumption that we will finish up around June 30,” he adds.

And the AmeriSource-Bergen deal? “I find that a little surprising,” Lucas says. “If it’s a good economic deal, which presumably they think it is, then you would think that perhaps the financial reporting wouldn’t make it a bad deal.”

Source: www.CFO.com

 

 

May 8, 2001

Health

Regulators Ask AmeriSource, Bergen
For More Details on Planned Merger

By RHONDA L. RUNDLE and JOHN R. WILKE
Staff Reporters of THE WALL STREET JOURNAL

Federal antitrust enforcers asked AmeriSource Health Corp. and Bergen Brunswig Corp. for more information about their proposed merger, which would create a giant drug-distribution company with nearly $35 billion in annual revenue.

While such requests aren't uncommon in big mergers, the action by the Federal Trade Commission signals it is taking a hard look at the AmeriSource-Bergen combination. The proposed merger, valued at $2.4 billion in stock when it was announced in March, would create a company that would assume about $1.3 billion in debt.

On Monday, the companies said they remain optimistic the transaction can be completed by late summer. But in 1998 the FTC successfully blocked the same companies' proposed mergers with two different drug-distribution partners. At that time, Bergen Brunswig had agreed to merge with Cardinal Health Inc., and AmeriSource was pledged to McKesson HBOC Inc.

In response to the FTC's letter Monday, Bergen and AmeriSource, the industry's No. 3 and No. 4 wholesalers, said their merger would strengthen competition with Cardinal and McKesson, the industry's No. 1 and 2 players. "We view this as two major nationals going to three; last time it was four going to two," said Bob Martini, chairman and chief executive of Bergen, which is based in Orange, Calif.

Bergen and AmeriSource said their customers are backing them this time. "Even customers who resisted the earlier transactions [in 1998] and testified in opposition" to them "have been neutral or supportive, if not advocates" of the AmeriSource-Bergen combination, Mr. Martini said. The combination "provides additional cost savings and synergies" to the health-care supply chain, said a spokesman for AmeriSource, based in Valley Forge, Pa.

The demand for more information means the merger review is likely to be decided by President Bush's nominee for FTC chairman, Timothy Muris, who is awaiting confirmation hearings before the Senate. Robert Pitofsky, the current chairman, is expected to step down as soon as Mr. Muris is confirmed.

While lawyers expect Mr. Muris might be willing to approve some combinations that might have been blocked under the current FTC, there is no way of knowing how Mr. Muris will view the AmeriSource-Bergen deal.

Source: Wall Street Journal, May 19, 2001