DUBLIN, Ohio -- Cardinal Health Inc., the No. 2 U.S. drug wholesaler, agreed yesterday to buy Allegiance Corp. for $5.4 billion in stock and debt, as it seeks to market medical supplies and cost-management services along with pharmaceuticals.
The stock portion of the transaction, valued at $38.47 a share, represents a 67 percent premium for Allegiance shareholders, based on Thursday's closing price of $23. Each Allegiance share will be exchanged for 0.415 Cardinal share. Cardinal, which saw its shares drop as much as 13 percent after the news, also will assume $890 million in debt.
The acquisition comes after Cardinal was blocked in July from buying Bergen Brunswig Corp., the third largest U.S. drug wholesaler, because of antitrust concerns.
If regulators approve the Allegiance acquisition, Cardinal will sell everything from bandages to management services to drugs such as Viagra at a time when hospitals are looking to deal with fewer suppliers.
"This looks like an intelligent step toward the one-stop shop," said Tom Burnett, the director of the New York-based research and consulting firm Merger Insight.
Cardinal ranks second to McKesson Corp. in sales in the drug wholesaler market. Drug wholesalers resell and distribute the pharmaceutical products manufactured by drugmakers, and are looking to expand into other medical products to keep earnings growth high.
Allegiance is the largest U.S. supplier of medical products, distributing more than 300,000 items, but no pharmaceuticals. It also manufactures surgical and respiratory-therapy products.
The transaction isn't expected to decrease earnings and could lead to cost savings of more than $50 million within two years of the completion of the transaction, said Robert Walter, Cardinal's chairman and chief executive.
The combined company will have a sales and support staff of about 2,500. "I would say that's at least five times our nearest competitor," said Lester B. Knight, chief executive of Allegiance.
Shares of Cardinal fell $8.8125 to $83.875 yesterday in trading of 6.6 million shares, more than 10 times the three-month daily average.
McGaw Park, Ill.-based Allegiance rose $9.4375 to $32.4375 in trading of 9.2 million shares, more than 18 times the three-month average.
Pub Date: 10/10/98