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Executive Summary

McKesson is considering terminating its agreement to acquire Alco Health Services if Alco does not agree to a reduced purchase price, McKesson said in a Sept. 22 release. "McKesson has proposed to Alco Health a reduction in the price which it would pay to acquire Alco Health and t modigy the agreement in other respects, but the parties have not reached agreement," McKesson said. Under the current agreement, announced in June, McKesson would pay $ 30 a share in cash, or just of $ 500 mil., for Alco. Alco Health Services said in a same-day release that it "has not agreed to McKesson's proposals" and that it is "continuing to consider alternative courses of action with rspect to the merger agreement in light of McKesson's announcement." McKesson's $ 30-a-share offer had topped a $ 26-per-share bid for Alco Health Services from a management and investor group organized by buy-out specialist Kohlberg & Co. That offer, worth $ 434 mil., was announced on June 1. Alco Health Services reported sales of $ 1.7 bil. for fiscal 1987 ended Sept. 30 and net income $ 18 mil. McKesson has also announced that it will extend the expiration date of its current offer until Sept. 26. The offer was previously set to expire on Sept. 21. McKesson indicated that the extension will allow time for the firm to satisfy requested for information from the Federal Trade Commission. Previous extensions of the expiration date were apparently also mae to address FTC requests. The relatively long time that FTC has taken to approve the merger suggests the agency may be concerned about potential antitrust problems. One result of such concern might be the requirement that McKesson divest pat of Alco following the acquisition, which may be a factor in McKesson's attempt to renegotiate the purchase price. NARD asked the Federal Trade Commission to oppose the McKesson/Alco merger in Aug. 24 comments to the agency ("The Pink Sheet" Sept. 5, T&G-7). Arguing that the combination would create a "classical" anticompetitive situation, NARD maintained that the two distributors could control 75%-90% of two regional markets in Ohio and the Philadelphia/Baltimore corridor if they merge. NARD had also contended that the merger would put together overall market shares representing a substantial portion of the drug wholesale business in the U.S., permitting the combination to raise drug prices. McKesson noted in its release that the merger pact "provides that any party may terminate that agreement if no shares have been purchased by AHS Acquisition [the McKesson acquisition vehicle] on or befor Sept. 23, and no shares will have been purchased by that date inasmuch as McKesson is still endeavoring to respond to Federal Trade Commission requests for information." McKesson added that as of Sept. 21, "41,143,570 shares of common stock, not including shares tendered by notice of guaranteed delivery (approximately 33% of the common stock outstanding at the time of the offer) had been validly tendered and not withdrawn."

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