McKesson Corp. said Tuesday that it plans to acquire AmeriSource Health Corp., a rival distributor of pharmaceuticals and medical products, for $1.7 billion in stock, plus debt.
The merger would keep McKesson on top of the $65-billion U.S. wholesale drug market, a post threatened by last month's news of the $2.8-billion merger of Cardinal Health Inc. and Bergen Brunswig Corp., analysts said.
The AmeriSource transaction, the second major purchase by McKesson in a year, would create a company with more than $26 billion in annual sales and a combined retail network of more than 9,000 independent pharmacies.
"This is a savvy move by McKesson, clearly a reaction to the Cardinal-Bergen announcement. [McKesson] realized that if the [Cardinal-Bergen] transaction is approved by the FTC, it would have resulted in lower odds of it being able to acquire a company of any size because of heightened industry concentration issues," said Salomon Bros. analyst Larence Marsh.
Under the agreement, AmeriSource shareholders will receive 0.71 share of McKesson common stock for each AmeriSource share. Based on Monday's closing price of $99.81 for McKesson stock, the deal values AmeriSource at $70.87 a share, well above its closing price of $53.69 Monday.
McKesson will issue about 17.4 million new shares of common stock in the merger and assume $532.3 million in AmeriSource long-term debt.
AmeriSource shares jumped $6.56 to close at $60.25, while McKesson stock climbed $3.94 to $103.75. Both trade on the New York Stock Exchange.
David Risinger, a Morgan Stanley analyst, said the McKesson-AmeriSource deal "is a very powerful combination. They are talking about merging the No. 1 and No. 4 distribution companies, resulting in earnings accretion and cost savings for customers."
The combined company will operate under the McKesson Corp. name and will be headquartered in San Francisco.
AmeriSource, based in Malvern, Pa., is the third-largest vendor to the managed-care market and the fourth-largest national distributor of pharmaceuticals and related health-care products. In August, the company signed an agreement with Pathmark Stores Inc. to be its exclusive pharmacy supplier.
McKesson, based in San Francisco, is the leading health-care supply management company in North America. Last November, McKesson acquired FoxMeyer Drug and has been in the process of integrating its operations.