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Cardinal and Bindley Western agree to merger
Cardinal Health is aiming to replace McKessonHBOC as the nation's largest drug wholesaler by acquiring Bindley Western Industries. If Cardinal's bid is approved, the Dublin, Ohio-based wholesaler will control 19% of the domestic wholesale drug market. McKessonHBOC has 17% of the market, according to EGS Securities.
"At first blush, we don't see a lot of challenges to the merger," said Todd Dankmeyer, spokesman for the National Community Pharmacists Association. "The size and geography of the stores involved don't create the kind of market share concerns that arose last time." The last time was 1998, when Cardinal tried to buy Bergen Brunswig, then the No. 3 wholesaler. Industry leader McKesson responded with a bid to buy AmeriSource Health, the No. 4 player.
The Federal Trade Commission blocked both mergers as anticompetitive. NCPA also opposed the mergers. "We had the top 80% of the market going from four players to just two," Dankmeyer said. This time around, Cardinal has set its sights lower. Bindley is No. 5 in drug distribution, with $5.8 billion in annual sales and $42 million in profits as of June 30, 2000. The company has more than 2,000 employees and 16 distribution centers.
"A smaller player may not have the resources to cope with product-distribution pressures in today's market," said Lucinda Maine, senior v.p., professional affairs, American Pharmaceutical Association. "There could be some very positive results from consolidation if the survivors remain sensitive to their customers' needs."
No. 2 player Cardinal is offering $2 billion for Bindley, including $1.6 billion worth of stock and assumption of $430 million worth of Bindley debt. Cardinal earned $680 million on $25.2 billion in sales for the year ended last June. "This merger makes a lot of sense," said Cardinal chairman and CEO Robert Walter. "It's a great fit, both operationally and culturally." Bindley brings expertise in managed health organizations, federal government contracting, and nuclear medicine, markets in which Cardinal has little or no presence. Cardinal is strong in hospitals, automation, drug-delivery technologies, and consulting. Both companies have major independent and drug chain customers, but CVS is the only major client they have in common.
Cardinal expects to turn a profit on the acquisition immediately, Walter told financial analysts. The company also expects to generate at least $100 million annually by consolidating operations, cutting duplicated overhead, establishing better merchandising with existing Bindley customers, and improving inventory management. The combined company should produce at least 20% annual growth.
One of the first steps will be a reduction in distribution centers. After Cardinal took over Whitmeyer Distributing in 1994, Walter said, the firm went from 40 distribution centers to 24. Buying Bindley takes the company back to 40 centers, setting the stage for another round of consolidation.
Neither company has said which distribution centers will be eliminated. The expected drop in distribution center count will be offset by continued growth in nuclear medicine. Bindley's radiopharmacy subsidiary, Central Pharmacy Services (CPS), operates 32 nuclear pharmacies.
Existing Cardinal hospital and health-system patients can expect aggressive marketing programs for CPS. Walter indicated that unit-dose nuclear meds will be added to service and product bundles as soon as possible. Cardinal is also sticking to Bindley's expansion plans for CPS, which call for four to five new outlets annually. He said most of the growth will come from the acquisition of independent radiopharmacies. About 75 of the nation's 280-some nuclear pharmacies are independent, he said.
Cardinal hopes to close the Bindley purchase by mid-2001.
Fred Gebhart. Cardinal acquires Bindley in bid to become top wholesaler.