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AmeriSource-Bergen Deal Has Good Chance
Of Clearing Regulators

By Joann Loviglio   Associated Press
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PHILADELPHIA — AmeriSource Corp.'s proposed $2.4 billion combination with Bergen Brunswig Corp. may not run into the same regulatory roadblocks that ultimately derailed the last serious attempt of consolidation among drug distribution companies, analysts said Monday.

The agreement, approved by both boards of directors over the weekend and announced Monday, will create a company with nearly $35 billion in annual revenue, delivering pharmaceuticals and supplies to businesses such as drug stores, hospitals and health-maintenance organizations.

The new company would rival McKesson HBOC and Cardinal Health Inc., which last month acquired Bindley Western Industries Inc. to form the biggest drug wholesaler.

"This transaction does not reduce competition nor does it violate antitrust laws," said R. David Yost, chief executive officer of AmeriSource.

The FTC in 1998 blocked Cardinal's proposed purchase of Bergen and McKesson's planned takeover of AmeriSource. The FTC argued the deals would put too much power in the hands of McKesson and Cardinal.

Using 2000 revenues as a guide, the combined entity of AmeriSource-Bergen would be so close to McKesson and Cardinal that it is unclear which company would be the largest, said Ray Lewis, an analyst with McDonald Investments Inc. That could bode well for the merger.

"Part of the concern (in 1998) was that you were going to get down to two very major players — Cardinal and McKesson — with the third, Binley, a big step down in size," Lewis said. "Now, you've got three who are going to be pretty close in size and that may provide a little more comfort from the FTC's perspective."

The Valley Forge-based AmeriSource will own about 51 percent of the combined entity. It will also assume $1.3 billion in debt as part of the deal.

Bergen shareholders will receive 0.37 of a share for each share of the Orange, Calif.-based company they own.

Shares of Bergen Brunswig rose 75 cents to $16.01 on the New York Stock Exchange, while shares of AmeriSource fell $2.91 to $45.57.

The combination is expected to create $125 million in annual cost savings by the third year, partly through layoffs and closing about half of the companies' combined 52 distribution centers, AmeriSource president Kurt J. Hilzinger said. Officials declined to estimate how many people could lose their jobs.

"Make no mistake — we are prepared to make the tough decisions to successfully execute this transaction," said Robert E. Martini, chairman and chief executive officer of Bergen Brunswig, who will become chairman of the new company. "This combination is not about being big, it is about being the best. We will take the best from each company."

Bergen, with about $23 billion in revenue, is about twice the size of AmeriSource.

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