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ALCO ENTERING UPPER MIDWEST WITH PURCHASE OF SOUTH DAKOTA-BASED BROWN DRUG: FIRM PROJECTING OVER $800 MIL. IN HEALTH BUSINESS IN FISCAL 1984

Executive Summary

Alco is extending its drug whsle. operations into the upper midwest with the purchase of Brown Drug, a privately owned, full-service regional whslr. serving South Dakota, Minnesota, Iowa and Nebraska. Alco announced May 18 that the two firms had reached an agreement in principle for the purchase. Terms of the agreement were not disclosed. Headquartered in Sioux Falls, S. Dakota, Brown Drug has distribution centers in Council Bluffs, Iowa, and Mankato, Minn. Along with pharmaceuticals, H&BAs and general merchandise are distributed by the firm. The company maintains a field sales force of 12. Operations are managed under a centralized computer system. The whslr.'s top management, consisting of principle owner and Chairman Richard Brown, President Manter Mathison, and Corporate VP Lowell Knudson will continue to operate the business as a separate unit within Alco's federated organizational structure. Alco said in a May 18 press release that Brown will become a part of the Alco Health Services Corporation, whose whsle. operations currently extend from New York and Pennsylvania south to Georgia and west to Texas. Alco's drug whsle. reach into the upper midwest goes as far as the Ohio area through Kauffman-Lattimer, headquartered in Columbus. In the press release, Alco said that it "anticipated fiscal 1984 revenues in excess of $800 mil." Last fall when Alco filed a prospectus for the sale of 3.6 mil. shares of Alco Health Services Corp., the firm said that about 75% of its health business was in drug distribution. Annualized calculations based on nine month figures supplied to SEC indicate that the drug whsle. volume for the year ended Sept. 30 was about $475 mil. ("The Pink Sheet" Oct. 31, p. 3). Brown Is First Purchase Since Spin-off Plan Was Announced; Sale Of Shares Delayed By Market Conditions On that basis, Alco Health Services' drug distribution business in 1984 will have increased more than 25% during the year, to over $600 mil. Among Alco's acquisitions during 1983 which contributed to the volume increase were Allegheny Drug (Pittsburgh), and Smith-Higgins (Johnson City, Tenn.). Alco also added Rita-Ann (Chester, Pa.), a cosmetic distributor, and Allprints, a photo finishing business. When it issued its prospectus last fall, Alco pointed out that it was interested in continuing the trend among whslrs. of similar size such as Fox-Meyer to expand by acquisition. However, the Brown purchase is the first by Alco since it announced its plan to spin off the health services business. Alco carries virtually no long term debt, and with the increased leverage of the public offering, the firm appeared to be in good position to move quickly for an acquisition. However, the shares -- representing approximately 30% of Alco's health unit -- have not been placed on the market as the company awaits more favorable market conditions. Alco hoped to raise $75.6 mil. from the public offering. Alco explained in the prospectus that although the proceeds "will be used primarily for working capital to replenish the whslr.'s accounts receivable withheld by the parent company, the balance may be used to finance future acquisitions." The filing reiterates that Alco "intends to continue its program of acquiring distributors of health care and related products and business which provide related customer services." Along with The Drug House, Smith-Higgins, and Kauffman-Latimer, Brown Drug will join three other old-line whsle. drug houses purchased by Alco since its initial acquisition of The Drug House in 1977. Duff Brothers, in Chattanooga, Tenn., Geer Drug, in Charleston, Greenville and Spartanburg, South Carolina, and Strother Drug, in Virginia, North Carolina and West Virginia. Alco's full health product distribution business also includes several distributors of medical/surgical supplies and H&BAs.

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