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BERGEN BRUNSWIG SHARE OF WHOLESALE DRUG MARKET TO GROW TO 20%

Executive Summary

BERGEN BRUNSWIG SHARE OF WHOLESALE DRUG MARKET TO GROW TO 20% in the current fiscal year, based on its recent spate of acquisitions. The company's recently-released annual report, covering the fiscal year ended Aug. 31, places Bergen's 1992 market share at 18%. Bergen anticipates attaining a 20% share through added strength in the Southeastern U.S. brought by the acquisitions of Owens & Minor, the Dr T. C. Smith Co. and Durr- Fillauer. Bergen Brunswig reported a 17.5% increase in sales to $5.05 bil. in FY 1992 and attributed about $130 mil. of that increase to six months of sales by Owens & Minor. On Feb. 28, Bergen acquired "substantially all" of the drug distribution business of Owens & Minor for approximately $51.8 mil. in cash ("The Pink Sheet" Jan. 20, T&G-1). O&M's distribution centers in Virginia and North Carolina are expected to bring in some $300 mil. in annual sales. Bergen signed an agreement Sept. 30 to acquire the Dr. T. C. Smith Co., a family-owned wholesaler with distribution centers in Asheville and Raleigh, N.C. ("The Pink Sheet" Oct. 5, p. 15). The Dr. T. C. Smith Co. generates an annual sales volume of about $150 mil. and services North and South Carolina, Georgia, Tennessee and parts of Virginia. Bergen expects to complete the acquisition by the end of November. The largest of Bergen's recent string of regional wholesaler purchases was completed on Oct. 5 when Bergen acquired all of Durr-Fillauer for approximately $404 mil. in cash plus expenses estimated to be $34 mil. ("The Pink Sheet" Sept. 14, p. 11). Bergen is also assuming certain long-term liabilities of Durr- Fillauer, amounting to about $73 mil. The Durr-Fillauer purchase stretched the normally conservative Bergen Brunswig's financial limits, but the importance placed on bolstering Bergen's southeastern markets was apparent in the lengthy bidding battle the wholesaler carried on with Durr's original acquisition partner, Cardinal Distribution. Bergen financed $175 mil. of the Durr-Fillauer purchase from a $300 mil. unsecured revolving credit line agreement entered into with a group of banks in September. The remainder of the cost of the acquisition, approximately $263 mil., was paid "from funds generated internally by the company," the annual report states. For the year ending Aug. 31, Bergen reported cash on hand of about $308 mil. The company may soon replenish that cash position from the sale of Durr-Fillauer's medical/surgical supply business. The Durr-Fillauer acquisition gives Bergen drug distribution centers in North Carolina, Florida, Alabama, Mississippi and Louisiana. The annual report confirms that "although no final decision has been made, the company intends to explore promptly the disposition of Durr-Fillauer's medical/surgical and orthotic business operations." Those operations account for about one quarter of Durr-Fillauer's revenues. Bergen expects the acquisition of Durr-Fillauer to add about $1 bil. in annual sales. In addition to the high acquisition costs, Bergen is facing a big upswing in its capital expenditures budget. The wholesaler expects capital expenditures for 1993 to reach $40 mil., which is more than twice the $18.9 mil. Bergen spent in 1992. The intensive spending will include "additional investment in data processing and automated warehouse equipment," the annual report states, as well as "investment related to the consolidation and relocation of existing locations." Bergen remains "the nation's leading supplier of pharmaceuticals to hospitals," estimating a 28% market share. Biotech products account for 10% of Bergen's sales to hospitals and related institutions. Many of those products, the annual report notes, "are dispensed from alternate health care sites such as dialysis and oncology centers and specialized clinics."
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