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Executive Summary

Durr-Fillauer views the proposed leveraged buy-out of Alco Health Services and the Federal Trade Commission's rejection of McKesson's subsequent merger offer as two positive factors for the future growth of the Southeastern regional wholesaler. Both moves, Durr-Fillauer Chairman William Williamson declared, appear to be "very positive on our positions as competitors" with Alco. Williamson made his comments on Nov. 7 in a presentation before the New York Society of Security Analysts. Williamson's comments preceded a statement by Alco on renewed merger discussions on Nov. 10 (see related story, page 6). "If ]Alco[ did the LBO, the new business . . . would be out of the acquisition arena. They would probably be leveraged very highly and would probably be managing cash instead of trying to manage more growth," Williamson said. He suggested that the upshot of the McKesson-Alco offer "was probably even better." The aborted McKesson deal indicates the restrictions on acquisition growth for the top three or four U.S. wholesalers, Williamson said. The Durr-Fillauer exec said he "would think, mainly by the size of McKesson or even a Bergen and even a FoxMeyer, that there might be some antitrust complaints" in future wholesaler merger attempts. Despite failing in the Alco and Northwestern Drug merger attempts, McKesson says that certain geographic possibilities still exist for acquisitions (see related story, page 5). Williamson, however, does not foresee FTC problems with growth by the regional wholesalers. "I don't believe there would be any ]constraints[ for smaller companies like ourselves." Having recently bought Spokane Medical Supply in Washington State, Durr-Fillauer is considering further acquisitions in the alternate site medical supply business. Durr Fillauer did not specifically mention to the analysts plans to expand its wholesale drug business via acquisition. The company has "maintained an acquisition strategy in leveraging off of where we already are, so we're not hopping around all over the place," said President Charles Aiker. "Now that we've moved out into the West, it would make sense for us to make an acquisition, say, in Northern California." Aiker said Durr-Fillauer expects medical/surgical supply sales to increase at an annual rate of 20% after 1989, while profits could increase at an even faster pace. The increase would follow three years of flat sales, as the Med/Surg business posted a 0.8% increase on 1987 revenues of $ 157.9 mil., Pretax income rebounded 9.8% to $ 9.9 mil. in 1987 after falling in 1986. At an overall annual corporate growth rate of 15%, Durr-Fillauer would become a $ 1 bil. company in 1992, the company noted. Asked whether the envisioned expansion to a $ 1 bil. company could be done within the company's existing geographical boundaries, Aiker said "that's especially true since we have expanded out of the Sunbelt with our Med/Sug division." Aiker estimated 1988 wholesale drug sales will be $ 390 mil., up 21%. In 1989, the company will begin to benefit from the recent realignment of the drug supply contracts with Voluntary Hospitals of America ("The Pink Sheet" Sept. 26, p. 3). Aiker reiterated that revenues under the contract should reach $ 120 mil. in 1989, "which will be about a $ 50 mil. increase from what we currently do with VHA." The VHA contract should increase profits because the company "will have minimal operating cost increases because we're currently serving the geographic area that we were awarded," Aiker explained.

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