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Stocks Fall After Bergen Brunswig, Ivax Agree on Merger

November 11, 1996

MIAMI (AP) _ A $1.65 billion merger announcement by drug wholesaler Bergen Brunswig Corp. and generic drug giant Ivax Corp. sent both stocks tumbling Monday primarily due to Ivax’s recent weakness in a cutthroat business.

Executives touted the new company as a combination of Bergen Brunswig’s nationwide distribution network with Ivax’s drug portfolio and manufacturing.

``We can cut costs in the supply chain and help make health care more affordable,″ said Donald Rhoden, the Bergen Brunswig president who will be chief executive of the new company.

But Bergen Brunswig, one of the nation’s biggest drug wholesalers, ``is a very solid, steady, almost boring type of stock, and Ivax has been wild and woolly,″ said Robert Wasserman, an analyst with Southeast Research Partners.

The deal came on the same day that Ivax reported losing $179 million, or $1.47 a share, in the third quarter, due to stiff price competition, declining sales, writeoffs and the costs of a reorganization. Revenues fell 28 percent to $223 million. In the same quarter last year, Ivax earned a profit of $27.6 million, or 23 cents a share, on $310 million in revenues.

The loss included writeoffs of $104 million in assets and inventories and expenses of $14 million for restructuring, factory shutdowns and other consolidation measures.

Acknowledging Ivax’s troubles, the deal values the company at just $13.75 a share, or more than $2 below its closing price Friday of $15.87 1/2.

In afternoon trading, Ivax fell $3.12 1/2, or 20 percent, to $12.75 on the American Stock Exchange, while Bergen Brunswig was off $4.12 1/2, or 13 percent, to $28.62 1/2 on the New York Stock Exchange. If that price holds, the value of the deal would drop to about $1.45 billion.

Ivax, the nation’s biggest generic drug company, was once a high flyer, with $114.8 million in 1995 profits. As health maintenance organizations and other managed care networks increased their use of cheaper generic drugs, its shares sold near $50 in the early 1990s and were worth $31 a year ago.

Miami-based Ivax manufactures generic substitutes for dozens of popular drugs including Proventil and Ventolin for asthma, Eli Lilly & Co.‘s antibiotic Ceclor, and Searle & Co.’s high blood pressure drug Verapamil. It also distributes generics made by other companies and has a small line of brand name drugs.

Last year, Ivax tried to merge with Hafslund Nycomed AS of Norway, the leading maker of X-ray dyes, in a bid to broaden its product line and gain more overseas distribution. That deal fell through Hafslund concluded it couldn’t get the required two-thirds approval from shareholders.

This year, the generic drug industry has seen increased competition for the lucrative sales to managed care organizations. This has driven down prices and cut profits for many leading companies, including Ivax.

``It’s strictly a revenue problem and a cost problem. They’re not profitable at their current revenue rate,″ Wasserman said. ``From an investor standpoint, it’s going to be a tough pill to swallow.″

In the long run, however, the deal is attractive, said Gruntal & Co. analyst David Saks, because it is creating ``a leaner, richer, more powerful company in market share and product offerings.″

The merger, if approved by shareholders and antitrust regulators, would create a new company called BBI Healthcare Corp. with more than $13 billion in annual revenues.

Ivax shareholders will get 0.42 of a share of the new company for each of their shares, while Bergen Brunswig shareholders will get one share for each share they now hold.

The board of directors will have nine members from Bergen Brunswig and eight from Ivax.

Robert E. Martini, chairman and chief executive of Bergen Brunswig, and Ivax chairman, chief executive and leading shareholder Philip Frost will become co-chairmen.

Ivax shareholders will own about 56 percent of the new company, while Bergen Brunswig shareholders will hold 44 percent.

The new company will be based in Ivax’s home base of Miami and will employ more than 12,000 people. Ivax has 7,900 employees. Orange, Calif.-based Bergen Brunswig has 4,250.

In addition to dealing with Ivax’s current troubles, the combined company could see lost sales of Ivax drugs to other wholesalers who would view the new company as a competitor. Joe Jones, an Ivax spokesman said the cost savings from the merger would more than offset such lost sales.

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