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OWENS & MINOR's NEW FLORIDA WHSLE. DRUG BUSINESS SHOULD SHOW PROFIT

Executive Summary

OWENS & MINOR's NEW FLORIDA WHSLE. DRUG BUSINESS SHOULD SHOW PROFIT beginning this summer, the Richmond, Va.-based drug and medical supply distributor indicated in its just released annual report for 1984. Owens & Minor's acquisition of Florida Wholesale Drug last June contributed seven-month sales of $9.9 mil., "but had a negative effect on profits," the whslr. reported. "We anticipate that by mid-1985 the Miami distribution center should be fully integrated into our system," the annual report states. At the time of purchase, Florida Wholesale Drug had annual sales of approximately $18 mil., Owens & Minor said. The Florida acquisition was Owens & Minor's first whsle. drug acquisition in 20 years and the whslr.'s first move to expand its drug distribution business outside its base in North Carolina, Virginia, and the District of Columbia. "The growing South Florida market will give the company the opportunity needed to expand its wholesale drug service area," the whslr. stated in the annual report. In recent years, the whslr.'s drug div. expansion efforts have taken a back seat to consolidation of the 9 Will Ross medical supply distribution centers acquired from Searle in April 1982. However, Owens & Minor noted in the annual report: "The wholesale drug industry continues to consolidate and we are looking for opportunities to capitalize on this consolidation." Several whslrs. in a similar position to Owens & Minor in recent months have opted to merge with a larger firm, such as Synergex (with Bergen), Spectro (with McKesson), and McPike (with FoxMeyer). According to McKesson's recent tender offer to Spectro shareholders, Spectro management was responsible for approaching McKesson in March after earlier discussions last fall were inconclusive. At the same time Spectro also solicited bids from other potentially interested buyers via its financial advisor Goldman Sachs. By moving into Florida, Owens & Minor is now moving in a very competitive growth market. In the past six months, both McKesson and Bergen have focused on Florida expansion via acquisitions. Last fall, McKesson acquired Tampa-based Johnson Drug. Meanwhile Bergen purchased the Allen Co. in North Florida in September and just announced a merger agreement with Davis Bros. which operates in the South Florida market (see related T&G previous page). Commenting on its current drug wholesaling operation, Owens & Minor indicated that its Cardinal Drug Center Franchise Program increased its membership by 35% during 1984 to approximately 60 stores. The whslr.'s Cardinal merchandising program for independent drugstores offers assistance in site location, market research, retail pricing strategy, employee training, merchandising, store layout and advertising, the annual report notes. The company also reported that its specialty packaging company, MWM Inc., recently signed a trademark license agreement with VHA Ventures, a subsidiary of Voluntary Hospitals of America, to package specific pharmaceutical products under the VHA label. Sales volume in the whsle. drug division increased 26.3% during 1984 to $134.9 mil., the company reported. Operating profit for the segment was $5.8 mil., reflecting an 18.1% increase over the previous year. The division accounted for 44.3% of overall corporate sales and 56.1% of operating profit, which wee $306.7 mil. and $10.3 mil., respectively. Reflecting a 20.2% gain in corporate sales during 1984, net income increased 20.8% to $3.6 mil. The whslr.'s medical/surgical division, which contributed 55.7% of corporate sales and 43.9% of operating profit, had sales of $170.8 mil. in 1984, up 15.7%. "Our sales growth resulted in a general increase in market share as the Medical/Surgical distribution industry continues to consolidate," the company stated. "The purchase of Florida Hospital Supply in Miami and subsequent consolidation of this company with our Ft. Lauderdale distribution center has strengthened our position in one of the fastest growing health care markets in the United States."

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