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FTC to Vote on Drug Maker Mergers

Pharmaceuticals: Four companies want to become two in control of 70% of the business.

March 03, 1998| From Bloomberg News

The Federal Trade Commission is scheduled to vote today on merger deals that would combine the nation's four largest drug wholesalers into two giant companies that would control 70% of the business, a person familiar with the agency's review said.

FTC lawyers reportedly have urged the commission to challenge the mergers on antitrust grounds. In one transaction, Ohio-based Cardinal Health Inc., the nation's third-largest drug wholesaler, plans to acquire No. 2 Bergen Brunswig Corp. in Orange. In the other deal, McKesson Corp., the nation's largest drug wholesaler, plans to acquire AmeriSource Health, the fourth largest.

Investors and analysts expect the commissioners, who usually follow the recommendation of their staff lawyers, to challenge the transactions. "We have believed all along that when you have four companies going down to two, it would be resisted," said Tom Burnett, founder of the New York-based institutional research firm Merger Insight. "As far as we can tell, it still will be."

Shares of the four companies fell in trading Monday. Bergen fell $2.13 to 42.88, while Dublin, Ohio-based Cardinal stock dropped 19 cents a share to $81.69. Valley Forge, Pa.-based AmeriSource fell $1.06 to $57.44, and San Francisco-based McKesson dropped 13 cents to $52.

The spread between the share prices of the buyer and seller widened for both transactions, indicating increasing investor skepticism about prospects for approval.

Typically, if the FTC decides to challenge an acquisition, it asks a federal trial judge to issue a temporary order blocking it until an FTC administrative law judge can hold a full-scale trial. That's what happened in the FTC's challenge to Staples Inc.'s planned takeover of Office Depot Inc. Those companies abandoned the transaction after a federal judge sided with the FTC.

Cardinal's purchase of Bergen, valued at $2.8 billion, was announced in August. Less than a month later, McKesson said it would acquire AmeriSource for $2.3 billion.

Lawyers for the companies made last-ditch pleas on behalf of their clients in meetings with the agency's commissioners last week, the person familiar with the case said.

Three of the agency's five commissioners must approve any challenge. Commissioner Mary Azcuenaga, however, has missed recent meetings for health reasons. If she's absent from today's session, the companies will only need two votes to scuttle the challenge.

If the commissioners opt to challenge, the companies will have to decide whether to mount a costly legal defense or abandon transactions they say will make them more efficient. Both agreements include escape clauses that allow either company to back out on short notice in the event of an FTC challenge.

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