ORANGE — Buffeted by rumors of short selling, Bergen Brunswig Corp.'s common stock came under selling pressure in unusually heavy trading Tuesday on the American Stock Exchange.
Company officials said they were puzzled by the activity--nearly 170,000 shares were traded, compared to a normal daily volume of about 64,000. Nothing the distributor of wholesale pharmaceuticals and videotapes is doing or planning would account for the flurry of trading, said investor relations spokesman John Fay.
Despite the heavy trading, the company's stock ended the day at $23.75, only down 25 cents a share. On Monday, the company's stock fell 75 cents to $24.
Fay said that the reported short selling activity, which involved only about 50,000 shares, should not have influenced the stock price. There are more than 34 million Bergen Brunswig common shares outstanding.
In short selling, a speculator sells borrowed stock, gambling that the stock's price will fall by the time the borrowed shares must be replaced, usually within five days of the initial transaction. The short seller makes a profit if he can buy replacement shares for less than he sold the stock for, and loses if the stock price increases.
Several Wall Street investment analysts said early Tuesday that a previously announced plan by Bergen Brunswig to offer $410 million worth of convertible notes was the likely reason for the stock activity.
Fay declined to comment on the offer, citing Securities and Exchange Commission regulations. The industry analysts, however, said that stock speculators might be concerned about the additional debt Bergen Brunswig will take on with its offering and were selling short in anticipation of a short-term drop in the stock price.
The company ended fiscal 1989 in August with $130 million cash on hand and expects to realize an additional $151 million from the proceeds of the convertible note offering.
Bergen Brunswig officials have said they intend to use the company's hefty cash reserves to pursue acquisitions, modernize warehousing and distribution facilities, and build inventory to protect against future price increases.
Separately, Moody's Investors Service on Monday assigned a BAA1 rating to Bergen Brunswig's proposed convertible note offering and upgraded the rating on $43 million in outstanding subordinated debt to BAA1 from BAA3.
The BAA group is Moody's "medium grade" investment rating, indicating that the credit rating service doesn't attach any serious problems, or significant benefits, to investments in the notes. BAA1 is the best or highest of the three BAA grades.
Moody's said it had assigned the rating to Bergen Brunswig's proposed notes and existing subordinated debentures because of the company's "significantly improved operating performance in its core drug wholesale business over the past two years," and because of the company's "strong market position and its healthy financial posture."
The rating service said it also expects Bergen Brunswig's earnings and revenues to increase over the next few years because of the overall health of the wholesale drug industry.