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AmeriSource Health Corp.’s acquisition of Bergen Brunswig Corp. is expected to face an intense antitrust review, though executives with the companies expressed confidence that the U.S. Federal Trade Commission will not challenge the $2.44 billion deal in court. “We have made a very thorough and lengthy study of antitrust issues,” AmeriSource Chairman R. David Yost said Monday in a conference call to unveil the transaction. “Based on that study, we do not anticipate that the FTC will ultimately challenge this merger.” The deal calls for each Bergen share to be traded for 0.37 shares of AmeriSource-Bergen Corp., while each AmeriSource share will be exchanged for one share in the new company. AmeriSource shareholders will end up with 51 percent of the stock. Goldman, Sachs & Co. advised AmeriSource, and Merrill Lynch & Co. advised Bergen. The combined company would control nearly 30 percent of the wholesale drug market, according to some estimates. That would make it the largest player, edging out Cardinal Health Inc., which has about 28 percent market share, and McKesson HBOC Inc., with about 25 percent. The three-firm Herfindahl-Hirschman index of market concentration would rise from about 1,730 to about 2,300. Under the 1992 federal merger guidelines, regulators worry about any deal that results in a market concentration score above 1,800 or increases the concentration level by more than 100 points. Antitrust experts said they expect the FTC to issue a second request for more details on the deal. The agency may even seek to halt the merger, much like it did in 1997 when it blocked Cardinal’s proposed purchase of Bergen and McKesson’s move to buy AmeriSource. “This is something the agencies are going to have some difficulty with and will take a hard look at,” said Richard Parker, who successfully prosecuted the earlier drug distributor cases for the FTC and who is now a partner at O’Melveney & Myers LLP. In the investor conference call, Yost argued that the drug wholesale market is much different today than it was four years ago. “The situation bears little resemblance to 1997,” he said. “Our transaction would ensure drug distribution remains dynamic.” Yost said the companies have different strengths. AmeriSource is established in the eastern U.S., while Bergen is strong in the West, he said. Also, AmeriSource focuses on acute care, and Bergen chiefly serves independent pharmacies and workers’ compensation plans. The deal also would create $125 million in cost savings in the first three years alone, he said. This would come by closing overlapping distribution centers, consolidating corporate staff, obtaining volume discounts on purchasing and getting lower cost financing. Regulators are allowed to approve otherwise anticompetitive deals if the efficiencies outweigh the competition reduction. Another point in favor of the merger is major customer support, Yost said, though he declined to identify any companies. He said customers believe the larger firm could serve them better. Even customers that opposed previous mergers of drug wholesalers applaud the transaction, he said. “We are very confident because of customer reaction to completing this transaction.” Yost said the deal is likely to win approval because the drug wholesale business is one of the few segments of the healthcare industry where prices are falling. “This combination would continue that trend,” he said. In addition, executives for the companies pointed to the lack of scrutiny the FTC gave to Cardinal’s December acquisition of Bindley Western Industries Inc., which did not even get a second request for information. But antitrust experts questioned if any of these arguments will mollify the FTC, which Robert Pitofsky, a Clinton appointee with a tough antitrust enforcement record, still chairs. “Something needs to have changed from 1997,” said Mary Azcuenaga, a partner in the Washington, D.C., office of the Heller, Ehrman, White & McAuliffe LLP law firm and a former FTC commissioner. “There would have to be a difference in the facts.” One source involved in the $2 billion Bindley merger warned against reading too much into the deal, noting that the drug company’s market share at the time was small and that its acquisition did little to alter the competitive landscape. The deal could rest on the combined company’s business plan, said Jonathan Baker, a professor at American University’s law school and a former FTC chief economist. The court rejected the 1997 deals because internal company documents revealed that the purpose of the transactions was to reduce capacity in the drug-wholesale business, which in turn would have resulted in higher prices. “The question is what will the company do with the assets,” Baker said. “Would they reduce their assets? That could suggest the FTC would have an issue with the merger.” Valley Forge, Pa.,-based AmeriSource and Orange, Calif.,-based Bergen said they expect to close the deal by the end of summer. They will use new purchase accounting rules recently adopted by the Financial Accounting Standards Board. Shareholders for both companies must approve the deal. Copyright (c)2001 TDD, LLC. All rights reserved.

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