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Executive Summary

BERGEN BRUNSWIG EYING FOXMEYER AS POSSIBLE ACQUISITION following receipt of a letter from FoxMeyer parent National Intergroup's investment banker First Boston asking if the company would be interested in acquiring the Dallas-based pharmaceutical distributor. Orange, Calif.-based Bergen Brunswig announced Dec. 13 that it sent a written reply to National Intergroup but stressed that "the letter does not constitute an offer to purchase FoxMeyer." NII said it also has solicited and received expressions of interest in FoxMeyer from "several other companies." Bergen President and CEO Robert Martini emphasized the preliminary nature of the interest. "While we hope to engage in serious discussions about FoxMeyer, and to make a thorough due diligence investigation so that we can make a meaningful offer," he stressed, "there is no assurance that we will make an offer, that any such offer will be accepted or that a transaction will occur." The addition of FoxMeyer would move Bergen very close to McKesson in terms of both market share and dollar sales. Bergen and McKesson together would control almost half of the U.S. wholesale drug distribution business. A combined Bergen-FoxMeyer business would have sales approaching $10 bil. Bergen sales for fiscal 1990 (ended Aug. 31) were $4.4 bil. FoxMeyer's sales volume this year has been estimated by company President and CEO Robert King to reach about $2.8 bil. McKesson sales for the year ended March 31 were $9.8 bil. FoxMeyer has been on the selling block officially since the end of August when it was preliminarily valued by National Intergroup's controlling shareholder group, Centaur Partners, at between $475 mil. and $525 mil. ("The Pink Sheet" Aug. 27, T&G-3). National Intergroup is not commenting on a possible valuation for FoxMeyer and said it is "reviewing proposals for the possible sale" of the business but has no deadline for such a move. Bergen's reticence over the status of its interest may stem in part from concerns over possible antitrust considerations that could be raised if it were to acquire FoxMeyer. With a 9% share of the drug distribution market, FoxMeyer is tied at third with Alco Health Services. McKesson currently has a 25% market share while Bergen Brunswig controls about 15%. The existing consolidation in the wholesale drug industry already has been a barrier to previous acquisition attempts. McKesson, for example, was prevented from acquiring Alco in 1988 when the Justice Department intervened. Bergen itself came under Justice scrutiny in 1985 when it purchased Synergex for $79 mil. One way of overcoming antitrust questions could be to purchase only portions of FoxMeyer. The company's chief exec King said at a Bear Sterns conference on Sept. 26 that the company had not "talked about so far" selling the company piecemeal to avoid possible anticompetition problems but he did not specifically rule out that possibility. National Intergroup also has not considered a break-up of FoxMeyer. The decision to put FoxMeyer on the auction block is the upshot of an eight-month power struggle at National Intergroup between existing management of the diversified firm and the New York investment firm Centaur Partners, which was the victor in a proxy battle in late July, winning four seats on the NII board. Centaur's stated goal is to maximize shareholder value through the sell-off of all NII assets, including FoxMeyer. NII's former management had wanted to keep FoxMeyer as the centerpiece of a restructured company that was to have been called FoxMeyer and relocated to Dallas.

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