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McKESSON/ALCO COULD CONTROL 75%-90% OF TWO REGIONAL MARKETS

Executive Summary

McKESSON/ALCO COULD CONTROL 75%-90% OF TWO REGIONAL MARKETS in Ohio and the Philadelphia/Baltimore corridor if the distributors merge, NARD charges in arguments against the proposed merger. The independent retail pharmacists group attacked the combination in an Aug. 24 press statement. "In some areas," NARD declared, "the merger would mean a combined market share of 75%-90%." Furthermore, NARD contended that the merger of McKesson and Alco Health Services would combine overall market shares representing almost 50% of the drug wholesale business in the U.S. Because such a combined dominance "would permit McKesson/Alco to raise drug prices," the association asked the Federal Trade Commission, in Aug. 24 comments, to "take all steps necessary to prevent a merger." Mckesson's annual report for fiscal 1988 notes that McKesson represents 27% of the $ 19.2 bil. national wholesaler drug market. McKesson says its customer list includes 14,000 independents, 3,000 chains and 2,500 hospitals. Alco Health Services' share is estimated at 10%. According to McKesson figures, Alco is the third largest drug wholesaler behind McKesson and Bergen-Brunswig (14% share), and just ahead of FoxMeyer (9%). The definitive merger agreement between McKesson and Alco was announced in June for approximately $ 500 mil., or $ 30 per share ("The Pink Sheet" June 27, "In Brief"). NARD asked FTC to block the acquisition as "a classical anticompetitive merger." Because "the proposed merger is straight horizontal merger," the association argued, "it will eliminate a strong competitor from the marketplace at a time when the number of alternative sources has decreased dramatically." The association noted that the number of drug wholesalers has declined 40% from 145 in 1980 to about 90 in 1987. According to McKesson's profile of the industry 88 smaller wholesale companies comprise 40% of the sales volume. McKesson is an associate member of NARD. The wholesaler says that it did not learn of the association's concerns with the merger without attempting to gauge from independent customers whether there were concerns about the potential adverse impact of the merger.
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