DRUG WHOLESALERS: Merger Plans Thwarted By Judge’s Ruling
The Federal Trade Commission won a fight Friday to block two multibillion dollar mergers in the drug wholesale industry. A federal judge ruled that the industry's four largest companies failed to prove that deals that would meld them into two companies would not hurt consumers by decreasing competition. Even though it only imposes a temporary injunction prior to a FTC administrative hearing, the ruling by U.S. District Judge Stanley Sporkin will almost certainly scuttle the $3.2 billion marriage of San Francisco-based McKesson Corp. and AmeriSource Health Corp. Analysts predicted that the $4.2 billion deal between Cardinal Health Inc. of Dublin, OH, and Orange County, CA's Bergen Brunswig Corp. is "pretty much over" because of the ruling. A Cardinal spokesperson, however, said "the company expects to decide within the next few days whether to appeal the decision," the Columbus Dispatch reports (Carter, 8/1). Lawyers for all four firms had previously said in court that a ruling against them "would force them to scrap the acquisition plans" ( San Francisco Chronicle, 8/1). However, analyst Kenneth Abramowitz of Sanford Bernstein & Co. said, "I think [Bergen and Cardinal] will appeal -- they've got nothing to lose but legal fees." Officials from the companies "expressed 'strong regret' at the court's decision."
Harmful To Competition
Sporkin ruled that the four defendants in the FTC's suit to block the mergers "have been unable to overcome the FTC's charge that going from four to two national firms would reduce the competitive balance beyond that which is legally permissible." Those with a stake in the ruling, including health plans and pharmacies, hailed the ruling, the Orange County Register reported Sunday. Pharmacy owner Richard Siebert said, "There is competition and good prices; it's not like there's a problem that needs to be fixed." Prescription Solutions pharmacy networks Director John Jones said that "these four are the Big Four, reducing them down to two has its dangers" (Crabtree, 8/1). The mergers represented the peak of consolidation in an industry that has seen the number of drug distributors shrink from 300 to 50 since the 1970s, the Washington Times reported (Goldreich, 8/1). The Washington Post reported that the mergers would have left "just two companies in control of about 80% of the $53 billion wholesale market," according to the FTC (Segal, 8/1). In reviewing evidence, Sporkin noted internal company documents that predicted "a more orderly market" and "rational pricing" after the mergers. The judge cited "evidence of pricing coordination by defendants" and a "subtle form of price stabilization" that would hurt consumers, the Wall Street Journal reports (Wilke, 8/3). However, analysts said that "even without the mergers, McKesson and Cardinal were emerging as 'the two industry superpowers'" (Freudenheim, New York Times, 8/1).