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This article was originally published in The Tan Sheet

Executive Summary

CARDINAL's ACQUISITION OF WHITMIRE WOULD CREATE THIRD LARGEST DRUG WHOLESALER in the U.S. with projected annual sales of about $ 6 bil. in calendar 1994, the two pharmaceutical wholesalers said Oct. 11. The proposed merger would combine Dublin, Ohio-based Cardinal Distribution's eastern U.S. wholesaling business with Folsom, Calif.-based Whitmire's western and central U.S. business. Whitmire would continue as an operating subsidiary of Cardinal if the acquisition is completed. The combination of Cardinal and Whitmire will "be in a position to serve the population of the entire U.S. on a next-day delivery basis from a network of nearly 40 distribution centers," Cardinal said. Cardinal reported sales of $ 2 bil. for the 12 months ended June 30, while privately held Whitmire posted $ 2.7 bil. in sales for that period. Both companies have registered sales growth at an annual rate of 30% over the past five years. According to the National Wholesale Druggists Association's 1993 "Fact Book," Whitmire and Cardinal were the number six and seven wholesalers in the U.S., respectively, during calendar 1992. Whitmire held a 6% market share for the year while Cardinal was at 5%, the "Fact Book" reports. The merger will place Cardinal behind McKesson (calendar 1992 sales of $ 8.9 bil.) and Bergen Brunswig ($ 7.6 bil.) in sales among wholesalers. Cardinal expects that its rate of growth would place the combination ahead of FoxMeyer ($ 4.8 bil. in 1992). The definitive agreement calls for Whitmire shareholders to receive 8.3 mil. shares of newly issued Cardinal stock, representing 27% of Cardinal's outstanding shares. At current market prices, the Cardinal shares would total about $ 300 mil. "Including the assumption of Whitmire debt, currently totaling approximately $ 100 mil., the transaction valuation exceeds $ 400 mil.," Cardinal said. The deal is subject to shareholder approval at both companies and regulatory review. It already has been "endorsed by the principal shareholders of Whitmire," the companies noted. The merger is expected to close in late 1993 or early 1994, the companies added. Whitmire is owned by current management, Apollo Investment Fund, and Chemical Venture Partners. Chairman and CEO Melburn Whitmire led a leveraged buy-out of the firm from Amfac in 1988 when it was a business of approximately $ 800 mil. in sales. Whitmire will remain as chairman and CEO of the company following the merger and will become vice chairman of Cardinal. He and two other Whitmire shareholder representatives will join Cardinal's board. The deal is the largest to date in Cardinal's growth-by- acquisition strategy, which has seen the wholesaler expand geographically by acquiring: Ellicott Drug Company (1984), James W. Daly (1986), Marmac Distributors (1988), Ohio Valley-Clarksburg (1990), Chapman (1991) and Solomons Company (May 1993). In recent years, Cardinal has relied on stock transactions to finance its acquisitions. Savannah, Ga.-based Solomons, for example, was acquired for 849,358 shares. Cardinal previously tried to acquire Durr Drug for $ 166.5 mil. in stock in June 1992, touching off a bidding war with Bergen Brunswig that ended with Bergen paying $ 475 mil. for Durr. Cardinal indicated that it expects to pursue additional acquisitions. "The combination will add no goodwill to Cardinal's balance sheet and will leave Cardinal's overall debt-to-total capital ratio at around 25%," the company said. "This strong capitalization leaves Cardinal well-positioned with the flexibility to pursue future growth and acquisition opportunities as the health care distribution industry continues to consolidate." The addition of Whitmire's nearly $ 100 mil. debt will leave Cardinal with approximately $ 200 mil. in debt and $ 100 mil. in cash on hand. Cardinal has lines of credit totaling $ 176 mil. and has registered $ 150 mil. in debt securities. Whitmire's earnings were not disclosed. However, the deal is expected to be additive to its earnings-per-share "immediately" despite the issuance of new shares to Whitmire, Cardinal said, adding that "results are expected to accelerate once synergies are realized over the next eighteen months."

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