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BERGEN BRUNSWIG SENSES METAL FATIGUE IN NATL. INTERGROUP EARNINGS, MERGER FRACTURES ON APRIL 17; WHSLR. HAS STRONG EARNINGS IN-HOUSE FOR FUTURE MOVES

Executive Summary

Bergen Brunswig's board is going to rely on continued double digit earnings gains from the distribution business to keep pace with the trend to whslr. consolidation. The board opted for funds from the distribution business instead of the vicissitudes of the declining steel business and called off the merger with Natl. Intergroup on April 17. Bergen and Natl. Intergroup announced the breakup of the deal on April 7 -- after shareholder approval by both firms. The companies said they had begun "discussions with a view to an orderly and satisfactory termination" of the agreement. Under an October agreement, the two firms would have merged through a stock swap ("The Pink Sheet," Oct. 8, 1984, p. 8). When the merger was announced, Natl. Intergroup had nine-month earnings of $39.8 mil. on sales of $2.1 bil. For the year, earnings had initially been reported at $52.6 mil. on volume of $2.3 bil. In the announcement calling off the merger, however, the companies said the 1984 figures were being restated downward. The earnings were lowered by $38.9 mil. due to commitments for aluminum purchases. Further Natl. Intergroup anticipates a loss of $18 mil. in the first quarter of 1985. Explaining the decision to call off the combination, Bergen Brunswig Chairman Emil Martini, Jr. and Natl. Intergroup Chairman Howard Love commented that "a number of matters had arisen creating a change in circumstances which made the merger no longer feasible. Primary among those matters were the restatement of Natl. Intergroup's 1984 net income announced by the company on April 12, 1985, and the deterioration of steel company earnings during the first quarter of 1985." The press release contrasted the Natl. Intergroup announcement with Bergen Brunswig's recent operating figures. Martini noted that earnings from continuing operations advanced 19% in the six months ended Feb. 28 to $13.5 mil. "Sales increased 33% to $1.09 bil., a significant portion of the sales increase coming from acquisitions in drug distribution," he said. Bergen had undertaken the merger to gird for further acquisitions using Natl. Intergroup's $400 mil. in cash reserves. Without Natl. Intergroup's money, Bergen will be testing its own mettle to stay in the high-price bidding for whslrs. The two most recent major purchases have gone for more than 20 times earnings. In a letter to shareholders explaining the termination of the deal, Bergen said: "The company is confident that we can continue to finance a high rate of growth." The company has low levels of debt ($20 mil. in long-term debt at the end of fiscal 1984) and cash reserves. The company had $91 mil. at the end of fiscal 1984 (Aug. 31). Bergen paid $8.3 mil. in cash for Allen Drug and $79 mil. in cash (from added debt) for Synergex. In the half-year that Bergen pursued the Natl. Intergroup merger, the trend towards consolidation in the whsle. drug business has continued at a fast pace. McKesson and FoxMeyer have added Spectro and McPike, respectively. Among the smaller recent acquisitions, Harris Whsle. picked up Yahr-Lange's Crandon Div. from FoxMeyer and Miami-Luken bought a West Virginia whslr., Kanawha Drug.
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