Dissatisfied with the unit's status as fourth-largest player in the nation's hotly competitive medical supplies industry, Bergen Brunswig Corp. said Monday it will sell its medical supply subsidiary to a private investment group for about $40 million cash.
The investors include most of the subsidiary's top management.
Bergen Brunswig officials said they want to sell Bergen Brunswig Medical Supply Inc., the nation's fourth-largest distributor of needles, syringes and other medical and surgical supplies, to focus more resources on expanding the parent company's much larger drug distribution business. Both companies have headquarters in Orange.
The transaction, expected to close in January, was put together by Bankers Trust Co. of New York, which is structuring the deal as a leveraged buyout.
The private investor group is led by Polyvios Vintiadis, a New York investor who will be chairman of the acquired company. The sale must still be approved by federal regulators and Bergen Brunswig debenture holders.
In its last fiscal year, Bergen Brunswig Medical Supply accounted for $247 million of Bergen Brunswig's $3.4 billion in sales and for $2 million of the company's $15.9 million in net earnings. The company distributes medical and surgical supplies to hospitals and other health providers primarily in the western United States.
Although Bergen Brunswig officials said they have not yet decided how to spend the proceeds from the medical supply subsidiary's sale, securities analyst John McRae, a specialist in medical companies, said he expects it will be used to make more acquisitions of drug companies.
In a series of six acquisitions that concluded about 18 months ago, the corporation boosted its annual revenues by about 50%.
Meanwhile, the purchasers of Bergen Brunswig Medical Supply said Monday they will also be in an expansion mode. Paul Jordan, president of the subsidiary, said that Bankers Trust Co. has agreed to provide expansion funds and that he expects acquisitions to begin in 1988.
Jordan, 51, said the New York investment group leading the acquisition of the medical supply subsidiary has no expertise in the medical business and has decided to retain the entire management staff of the subsidiary, including Jordan and five vice presidents. He said management has also received a small equity interest in the acquired firm, the exact amount of which he would not disclose.
Jordan said there will be no layoffs at the medical supply subsidiary, which employs 350 nationally, including 60 people in Orange. He said up to 30 more workers will be added to the company's administrative staff when it separates from Bergen Brunswig. At that time, he said, a new name will have been found for the company, as well as a new headquarters somewhere in Orange County.
John McRae, a securities analyst with Bear Stearns & Co., called Bergen Brunswig's sale of its medical supply subsidiary "an excellent move" that was "not totally unexpected" by Wall Street analysts who follow the company. He said that while the medical supplies unit recently improved its profit margins through frugal management, its revenue growth seems to have "peaked out."
Vintiadis said in a prepared statement Monday that, after the medical supplies unit is spun off from Bergen Brunswig, he intends to expand its operations nationally through further acquisitions. "This is a platform for building a national medical supply company," Vintiadis said.
George E. Reinhardt Jr., vice president and chief financial officer of Bergen Brunswig Corp., said the company is anxious to get out of the medical supply business. "We do not see the opportunities there that we see in our other business segments," he said.
"While there has been excellent progress recently in improving both asset management and earnings results at Bergen Brunswig Medical Supply, it is management's belief that utilization of the capital invested there can be more efficiently employed," Emil P. Martini Jr., Bergen Brunswig Corp.'s chairman and chief executive officer, said in a prepared statement.
Jordan, the medical supply unit's president, said Monday that in recent years the medical supply and drug distribution businesses have become fiercely competitive because of industry consolidations and government controls on hospital costs.
In a bid to increase market share, he said, larger companies have been gobbling up smaller ones.
Jordan said Bergen Brunswig faced the decision of whether to spend its energies and resources on expanding its drug supply or medical supply operations. "We were less than 10% of Bergen's revenues, so it was an easy choice," he said.
By contrast, Bergen Brunswig's national drug distribution business represents about 80% of the parent corporation's total revenues and about 15% of the nation's wholesale pharmaceutical sales. The Bergen Brunswig pharmaceutical distribution network is the second largest in the country, just behind top-ranking McKesson Corp. in San Francisco.