ALCO HEALTH SERVICES OPTING FOR $31 A SHARE LEVERAGED BUYOUT

ALCO HEALTH SERVICES OPTING FOR $31 A SHARE LEVERAGED BUYOUT in the wake of the drug wholesaler's aborted $30 a share merger with McKesson. The roughly $523 mil. cash tender offer was initiated on Nov. 18. Alco Health Services parent Alco Standard will tender its 36% interest in the drug wholesaling operation in connection with the agreement. The stage was set on Nov. 11, when Alco Health disclosed that it had "received late yesterday bids for the acquisition of the company." Alco Health noted that it had formed a special committee of the board to evaluate the proposals. The company acknowledged that the bids "had been solicited by the company." The acquisition vehicle is AHSC Holdings, a newly formed entity consisting of Citicorp Capital Investors, Alco Health management and other institutional investors. Alco Health president John McNamara is heading the management group. The $31 a share bid is almost $100 mil. higher than the $26-a-share offer proposed at the beginning of last summer by a management group led by then-chairman John Kennedy. McKesson's $30 a share proposal, advanced in June, was blocked by the Federal Trade Commission in October ("The Pink Sheet' Oct. 10, p. 5). There are approximately 16.86 mil. shares of Alco Health Services stock outstanding. "Shares not purchased in the offer will be converted pursuant to the merger into the right to receive subordinated debentures of AHSC Holdings expected to have a market value on a fully distributed basis of $31," the release states. "If less than 92% of the shares are tendered, the cash not expended in the offer will be paid pro rata to shareholders in the merger and the amount of debentures for each share in the merger will be reduced by the amount of cash received." The deal is conditioned upon the tender of a majority of Alco Health Services shares. The release notes that Citicorp Capital Investors has committed to provide AHSC Holdings up to $50 mil. in subordinated debt and equity financing in connection with the offer. "Drexel Burnham Lambert has delivered a letter to AHSC Holdings stating that it is highly confident that it can raise the remainder of the financing," the release adds. Drexel also will participate as an equity partner. Alco Health Services was spun off by parent Alco Standard in August 1985.