BERGEN BRUNSWIG OFFERING $310 MIL. IN CASH TO BUY DURR- FILLAUER AWAY FROM CARDINAL; BERGEN SAYS DURR’s WILLIAMSON WARNS: "DON'T MESS UP MY DEAL"
Bergen-Brunswig's $310 mil. cash offer for Durr-Fillauer exceeds the $297 mil. in cash/short-term investments that Bergen had on hand at the end of May, indicating the extent to which the wholesaler is willing to extend its resources to capture Durr- Fillauer's southeastern market base. Bergen estimates the full value of its offer at approximately $365 mil. when the assumption of Durr-Fillauer's debt is included. The Orange, Calif.-based wholesaler is in discussions with lenders to determine the amount it will need to borrow if the proposed deal is completed. If successful, the acquisition would be Bergen's largest purchase to date. Bergen's July 7 offer to pay $26 per share for the 11.9 mil. outstanding shares of Durr-Fillauer stock follows by one month Durr-Fillauer's proposal to sell its drug wholesaling business to Cardinal Distribution for $166.5 mil. in stock ("The Pink Sheet" June 8, p. 9). Durr-Fillauer planned to retain its medical supply and orthopedic businesses as an ongoing, separate operation. In a July 7 letter to Durr-Fillauer's board of directors, Bergen maintained that its offer represents a 24.6% premium over the closing price of Durr-Fillauer's stock immediately prior to the June 2 announcement of the agreement with Cardinal, and a 16.9% premium over the July 6 closing price. Bergen contends that the July 6 price ($22.25) reflects the full market valuation for the sale of the drug business to Cardinal and the continuation of the Durr-Fillauer medical supply business as a separate entity. Bergen is portraying its offer as a friendly one, with management contracts for Durr-Fillauer's top four officers. In its tender offer solicitation, however, the west coast wholesaler also points out that Durr-Fillauer Chairman William Williamson had an immediately negative reaction to inquiries from Bergen about the Cardinal deal. Reporting a June 3 telephone conversation between Bergen Chairman Robert Martini and Williamson, Bergen states that Williamson discouraged Martini from making a competing offer, saying: "Don't mess up my deal." By characterizing Williamson's initial response as a defense of management's deal, Bergen is apparently trying to paint the Cardinal offer as one favoring existing Durr-Fillauer managementt at the expense of shareholders. In its letter to the Durr-Fillauer board of directors, Bergen expressed disappointment that "despite knowing our long-term interest in joining Durr-Fillauer with Bergen Brunswig, your Chairman did not accept our long-standing offer to submit a business combination proposal to you." Bergen has been pursuing a business combination with Durr-Fillauer for "more than 10 years," and "indicated a strong interest" in such a venture as recently as last October, the letter states. The Cardinal offer would give remaining management control of the $241.4 mil. in annual sales Durr Medical subsidiary. Bergen offers to "enter into employment agreements with at least four of your senior officers, Messrs. Williamson, [Charles] Adair, [M.W.] Cotton and [Cullen] Smith," respectively the chairman and CEO; president and chief operating officer; Durr Drug president and COO; and exec VP and Durr Medical Corp. president and COO. Bergen said Durr-Fillauer explained that its decision not to solicit an offer from Bergen was based in part on a concern that any consolidation might not be in the best interest of their employees. The Bergen offer also states that the wholesaler will make commitments to "maintain and add to your existing company benefit plans, policies and programs" and Durr-Fillauer's "various civic and charitable programs." If Bergen succeeds in edging out Cardinal, the west coast wholesaler would significantly bolster its presence in the southeast with the addition of Durr-Fillauer's six distribution centers in Alabama, Mississippi, Louisiana, Florida and North Carolina. Bergen now has a regional distribution center in Florida and four smaller distribution outlets in Georgia, Tennessee, Kentucky and Virginia. Bergen has offered to establish a regional headquarters at Durr-Fillauer's Montgomery, Ala. corporate headquarters and continue the corporate name. Bergen's offer suggests a two-part acquisition with an initial cash tender offer followed by a merger in which all remaining shares would be acquired for $26 per share. If Durr-Fillauer pursues stockholder approval of its agreement with Cardinal, Bergen indicated its intention to initiate a proxy fight. The tender offer commenced July 8 and has an initial expiration date of Aug. 4. Over 38% of Durr-Fillauer's stock was held at the end of the first quarter of this year by 17 institutional investors. Amsouth Bancorporation was the largest investor, holding 844,454 shares (7%). Insiders own just under 8%, according to filings at the end of 1991. Bergen estimates that institutional investors may have been increasing their holdings to almost 50% in early June. Durr-Fillauer declined to comment on any aspects of the proposal. The wholesaler is said to be asking shareholders to hold off on any decision about the Bergen offer until the Durr-Fillauer board reviews the proposal. With the large percentage of institutional investors in Durr- Fillauer, the tender offer may not elicit much initial reaction. Investors may wait on the sidelines for a bidding battle to emerge between Bergen and Cardinal. The obstacles Bergen must overcome to acquire Durr-Fillauer if there is no cooperation on Durr-Fillauer's part are delineated in an action filed by Bergen in Delaware chancery court July 7 "to ensure" that the Durr-Fillauer "board fulfills its fiduciary obligations" by considering the proposal. The litigation seeks 12 separate declaratory judgments and permanent injunctions to force Durr to consider the Bergen offer and clear the path for its acceptance. Among the 12 actions sought in the lawsuit are: a declaratory judgment that Durr-Fillauer's board "cannot recommend" the Cardinal offer over the Bergen offer to shareholders; a permanent injunction banning the board from proceeding with the Cardinal merger; and a court order making Durr-Fillauer's board "gather and disseminate to the Company's stockholders, with full and complete candor, all pertinent information" about both offers. Based on the cost of the deal and Bergen's recent pattern of divesting non-drug businesses, Bergen would be likely to break up Durr-Fillauer after a merger. One logical move to help Bergen's financing of the acquisition would be the subsequent spin-off of Durr's medical and surgical supply segment. The drug and medical supply businesses already have been separated within Durr-Fillauer as of January and would be broken up under the pending Cardinal deal. Bergen has been actively divesting all of its non-drug businesses and has had recent dealings with Owens & Minor, a possible candidate to purchase the Durr-Fillauer medical surgical business. That Richmond, Va. company sold its drug wholesaling business to Bergen earlier this year and has been concentrating on its med/surg operations. Bergen notes in the tender offer that the company was "contacted by and held preliminary discussions with a potential third party purchaser" of Durr's medical supply subsidiary, "but has not reached any agreement or understanding with such party with respect to such disposition." Bergen Brunswig's financial advisor in the proposal is Jack Levy of Merrill Lynch. The wholesaler's special counsel in the matter is Roger Aaron of Skadden Arps.
You may also be interested in...
Newly released Medicare Part D data sheds light on the sales hit that branded pharmaceutical manufacturers will face when the coverage gap discount program gets under way in 2011
FDA appears headed for a showdown with clinicians and the pharmaceutical industry over the proposed new clinical trial endpoints for acute bacterial skin and skin structure infections, the guidance's approach for justifying a non-inferiority margin and proposed changes in the types of patients that should be enrolled in trials
Specialty drug maker Shire has quietly begun scouting deals with a brand-new $50 million venture fund, the latest of several in-house investment arms to launch with their parent company's pipelines, not profits, as the measure of their worth