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Good Times in Store at Bergen Brunswig?

Market: Orange drug wholesaler, plagued by debt, sees stock hit $11.06. It was $4.50 in March.


Bergen Brunswig Corp. stock hit a 52-week high Thursday, providing some indication that the beleaguered, Orange-based drug wholesaler may be starting to rebound from disappointing acquisitions that created a heavy debt load and dragged down profits.

The stock moved as high as $11.31 during Thursday's trading session after an analyst predicted that Bergen will log better-than-expected earnings through next year because it has shed some poorly performing units.

Others were skeptical, however, noting that the company recently lost a potentially lucrative contract to supply drugs for several hospitals.

Nevertheless, the stock has bounced back from its low of $4.50 in March. It closed Thursday at $11.06, up $1.06 a share, on the New York Stock Exchange.

"'I think Bergen's taken a number of significant steps to begin the turnaround process," said Goldman Sachs analyst Christopher McFadden, who raised his rating on the shares to "market outperformer" from "market performer."

McFadden said Bergen should be able to focus on its core pharmacy distribution business now that it has shed some underperforming operations.

He predicted the company will earn 62 cents a share in the current fiscal year, up from his previous estimate of 54 cents a share but still below last year's earnings of 95 cents a share. He raised his estimate for next year to 76 cents a share from 66 cents a share.

Chairman Robert E. Martini, who has been interim chief executive since Donald Roden was ousted 10 months ago, wouldn't comment on the earnings estimates. He said, however, that Bergen is finally on the right track.

"I think we're well-positioned going forward, but we still have some work to do and white water to get through," said Martini. He declined to elaborate.

Bergen has sold its medical supply distribution, correctional pharmacy and specialty pharmacy units for about $320 million. The company used most of the proceeds to reduce its long-term debt, which now stands at about $1.1 billion.

By lowering its debt, Bergen can reduce its interest payments and will be able to borrow on more favorable terms, analysts said.

The biggest drain was the Stadtlander specialty pharmacy unit, which was sold in July to CVS Corp., the nation's largest drugstore chain, for $124 million in cash. The sale excluded the Stadtlander business that distributed drugs to prisons. Stadtlander's operating loses for the nine months ended June 30 totaled $23 million, said Donna Dolan, Bergen's vice president of corporate finance.

Bergen had acquired Stadtlander in January 1999 for $335 million in cash and stock to expand its distribution of specialty drugs--expensive medications used to treat people with HIV/AIDS, organ transplants, cancer and other illnesses. Bergen also agreed to assume $100 million in debt.

John Calcagnini, an analyst at CIBC World Markets, said it will take more than a fire sale of Bergen's tarnished assets for him to become excited about the company. "Essentially, they're unraveling all their mistakes and divesting acquisitions at lower prices than they paid for them," said Calcagnini, who has a "hold" on Bergen stock.

John Ransom, an analyst with Raymond James, said Bergen suffered a big blow earlier this year when Novation, a group purchasing organization for hospitals, failed to renew Bergen's contract to provide drugs. Bergen, which said it was underbid by a competitor, stands to lose more than $1 billion a year in sales. However, Bergen said, the Novation contract might not have been profitable if it had lowered its bid.

At least one analyst thinks Bergen will benefit when it names a permanent chief executive.

"It's never good to have a company without a permanent CEO . . .," said Kenneth Abramowitz, an analyst with Sanford C. Bernstein in New York City. "When they fix that, Bergen will be more attractive to investors."

Even so, Abramowitz has a "buy" rating on Bergen shares.

Martini, who had served earlier as the company's CEO, said he plans to name a permanent CEO in the "near future." He said he has stayed on to oversee the restructuring efforts.

Bergen's troubles began in mid-1998 after a judge blocked a $2.4-billion takeover by rival Cardinal Health Inc. Bergen then acquired five companies, including two that gave it indigestion: Stadtlander and PharMerica, a supplier of drugs to nursing homes.

Bergen bought PharMerica amid much fanfare in April 1999 for $1.1 billion in stock and cash to expand its sales to nursing homes. But Medicare, the federal health insurance plan for the aged, reduced payments to nursing homes, which hurt PharMerica's bottom line.

Analyst had expected Bergen to sell off PharMerica, but the company has decided to hold on to the unit for now.


A New High

Drug wholesaler Bergen Brunswig Corp.'s stock, which had been battered earlier this year, climbed to a 52-week high on a bullish analyst report. Daily closing prices:

March 13: $4.50

Thursday: $11.60

Source: Bloomberg news

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