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Pharmacy giant raises bid for rival in Baltimore


Omnicare Inc. raised its offer to $32 a share for NeighborCare Inc. yesterday as the Federal Trade Commission gave the green light to the proposed acquisition.

The FTC's action and the new offer made a deal more likely, but probably at a higher price since NeighborCare's stock closed at $33.70 yesterday, analysts said.

NeighborCare, which has spurned a $30-a-share offer for more than a year, said its board would consider the new proposal, which values the Baltimore institutional pharmacy at about $1.7 billion.

"I have been saying all along that if there were a different price on the table, we'd review it carefully," said John J. Arlotta, NeighborCare's chairman, president and chief executive officer, in a statement.

NeighborCare officials declined to elaborate beyond the statement, which did not indicate how long the board's review might take.

A deal would allow Omnicare, the largest institutional pharmacy company in the country, to absorb a competitor that some rank No. 2.

Baltimore would lose a corporate headquarters - one it has had only since November 2003, when NeighborCare was spun off from the nursing home chain Genesis Health Ventures.

The FTC's year-long scrutiny, has been a factor holding up any movement toward a resolution of Omnicare's acquisition proposal.

"Now, with the FTC issue out of the way, it opens the door for the companies to sit down and have a serious discussion about the merger," with price the key issue, said Frank G. Morgan, an analyst for Jefferies & Company, who follows both companies. Jefferies makes a market in NeighborCare stock.

Morgan predicted that a deal is likely by the end of the year, probably at a price of about $33.70 a share, yesterday's closing price. "The market has done a pretty good job valuing the transaction," Morgan said.

"We believe that [Omnicare] would go higher to get a deal done, Jason Gurda, an analyst for Bear, Stearns & Co. Inc., wrote in another research note.

NeighborCare shares had closed at $32.16 on Wednesday, but rose $1.54 yesterday after the new offer. Omnicare shares closed $41.66, up $2.85.

The $32-a-share bid comes in the form of a revised tender offer, aimed at NeighborCare shareholders.

But, in a written statement, Joel F. Germunder, president and chief executive officer of Omnicare, said, "We look forward to sitting down with NeighborCare's board to discuss this compelling combination." Omnicare spokesmen also declined to comment beyond the written statements.

In its statement, NeighborCare advised shareholders not to respond to the tender offer until its board makes a recommendation.

NeighborCare has about 6,000 employees nationally, including about 500 in three headquarters offices near the Inner Harbor. Its roots are in the city; it was founded in 1980 as a single retail pharmacy. It still has about 30 retail pharmacies, most in the Baltimore area, but over time, institutional pharmacy became its main business.

In 1996, Pennsylvania-based Genesis acquired the company, but NeighborCare retained its offices in Baltimore and became an independent company again in November 2003.

Omnicare, based in Covington, Ky., has a reputation as a persistent and aggressive acquirer. It first made the $30 offer to NeighborCare's board more than a year ago and then made the same offer to shareholders.

At one point, a majority of shareholders signed up for the $30 deal but the number fell short of the 80 percent required for approval.

While the antitrust review proceeded, Omnicare kept extending the tender offer. But as the market price approached and then topped the $30 offer, some shareholders withdrew, and by this month, the proportion of shares signed up for the $30 tender had dropped to 22 percent.

Omnicare also has said it plans to run candidates for NeighborCare board seats, with the aim of getting a pro-deal board in place over several years.

In a letter yesterday to the NeighborCare board, Germunder reiterated the threat to run an opposing slate, but added, "We would hope to avoid this process and negotiate the terms of a definitive agreement as promptly as practicable."

Omnicare has an estimated 35 percent share of the institutional pharmacy market, while NeighborCare's share is estimated at about 12 percent. Institutional pharmacies fill prescriptions for residents of nursing homes and assisted living facilities.

Morgan said Omnicare's purchase of NeighborCare would allow it to negotiate better prices with drug suppliers and to trim costs by combining some of its pharmacy facilities with the Baltimore company's.

The pharmacies are large facilities with technicians measuring out prescriptions into bubble packs or other packaging designed to allow nursing homes to administer the proper dose to each patient.

The FTC said it had conducted a thorough investigation because Omnicare already serves more than half of the nursing home beds in several states.

Omnicare combining with NeighborCare's business would lead to market share being "highly concentrated" in those areas, the FTC said.

However, the agency noted, most nursing homes have a competing national institutional pharmacy and three or more independents within delivery distance. "It is unlikely that Omnicare, post-acquisition, could unilaterally impose an anticompetitive increase in price or reduction in quality," the FTC said.

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