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The AmeriSource Acquisition of Bergen Brunswig to form
Amerisource Bergen Corporation
Presented byDavid Nordella and Victoria Pearson
HSM 533 – Mergers and Acquisitions
Department of Health Services ManagementUniversity of La Verne
Joan Branin, Ph.D.Professor and Dean
Fall TermNovember 2, 2010
Presentation OverviewIntroductionsHistory of Amerisource Health Corporation (suitor)History of Bergen Brunswig Corporation (acquired)Amerisource Bergen Corp. Post Merger Analysis
Key PlayersFinancial OverviewLegal ConsiderationsBusiness Considerations
SummaryQuestions
IntroductionsDavid NordellaVictoria Pearson
History ofAmeriSource Health
Corporation(NYSE: AHC)
(Suitor)
History of Amerisource Health Corp. (AHC)AmeriSource was no stranger to M&A prior to the
acquisition of Bergen Brunswig.AHC had a long history of aggregation and
innovation.The company was originally privately incorporated
as Alco Standard in 1960.Alco Standard had annual sales of $5M in 1960. Alco Standard goes public in 1977.Alco Standard builds by a conglomerate network
through acquisition.
AHC History continuedEach acquired company was provided autonomy.Alco Standard’s role was to provide legal and tax
support.Emphasis of conglomerate became drug
wholesaling.Third largest pharmaceutical wholesaler in the
nation by early 1980s.
AHC History continuedThe drug industry was experiencing enormous
changes during the early 1980s.Healthcare expenditures were rising and
represented 10% of the Gross National Product.Demographics were driving the growth.Alco Standard’s drug distribution business was spun
off in 1985.Newco is Alco Health Services.
AHC History continuedOldco, Alco Standard, held 60% of Alco Health
Services after the spin-off.Alco Health offers to help independent drug retailers
with marketing, merchandising and Group advertising.
Independent drug retailers competed successfully with drugstore chains because of help from Alco Health Service.
AHC History continuedRetail support, with “home use” medical equipment
under Total Home Health Care brand is introduced in 1982.
Marketing support includes direct-to customer delivery and accounting assistance.
Health Information Management systems were offered to independent retailers in 1985.
Alco Health Services also sought business chains and wholesalers during this period.
AHC History continuedNew customers in 1980s: Hospitals and Health Care
Facilities.Annual sales surpassed $2B in 1988.Management attempted LBO in 1988.LBO blocked by Federal Trade Commission (FTC).McKesson Corporation offers $30 a share.FTC blocks McKesson’s offer as uncompetitive.
AHC History continuedAlco Standard explores options with their investment
banker, Drexel Burnham Lambert.Citicorp Capital Ltd. and Alco managers create
ASCO Holdings Corp. to acquire 92% of Alco Health.Consolidation continues in drug wholesaling.Alco changes name to AmeriSource Health Corp. in
1994.
AHC History continuedAmeriSource offers national telemarketing on behalf
of retail customers in 1995. Retail customers sue over whether AmeriSource is
giving discounts to HMOS, hospitals and mail-order pharmacies.
Judge dismisses suit in District court.AmeriSource propose merger with McKesson in
1997.
AHC History continuedAmeriSource gains contracts with Dep’t of Veteran
Affairs in 1999.More acquisitions in 1999.AmeriSource becomes “Preferred Provider” of
Pharmacy Providers Service Corp. representing over 1,200 independent pharmacies.
AmeriSource becomes Preferred Provider of Premier, Inc., the nation’s largest alliance of hospitals and healthcare systems.
AmeriSource had net revenue of $11.6B as of FYE 9/30/00.
History of
Bergen Brunswig Corporation(NYSE: BBC)
(Acquired)
Bergen Brunswig Corp. (BBC) History
Started in early 1800sThree core business verticals
Pharmaceutical DistributionPharmericaOtherFunder: Lucien Brunswig, emmigrant – FranceApprentice druggist in USAStarted wholesale drug supply$350K revenue within 5-years
Bergen Brunswig Corp. (BBC) History
Partnerships and geographic expansion westDied 1943 before company’s explosive growthBergen acquired Brunwig 19691990s wave of consolidationMultiple sole distributorship agreementsColumbia/HAC Healthcare merger catalyst for
dominationExpanded to full service value added supplier
Multi media productProprietary catalogs and electronic ordering systems
BBC Recent Acquisitions
BBC Companies Sold
The Merger Resulting inAmerisource Bergen
Corporation(NYSE: ABC)
Motives for The MergerGreater value for shareholders, gaining undervalued
assets. Rapid, reliable growth. Synergies from combined businesses.Increased market power from horizontal merger. Cost-reductions through economies of scale. scope.
Motives for the MergerCuts in expenses to improve profits from revenues,
positively impacting earnings. Financing posture expected to be improved as
investment banking fees were spread over a wider base.
Firm could achieve lower interest expense as banks competed for larger loans. The goal was to achieve all of these objectives through superior management skills.
AHC & BBC Merger ProcessFocus was specific operational and technical
systems,” information systems; sales and marketing; finance and back office operations; procurement and distribution and human resources.
Fully automated sorting, distribution networkUpgrade to SAP
AHC & BBC Merger ProcessAccounted as purchase method for business
combinations, AmeriSource acquired Bergen.Merged company valued at $7,000,000,000. AmeriSource stockholders owned 51% of new
company's 103 million shares outstanding Conversion ratio 0.37 share of AmeriSourceBergen
Corporation (ABC) per share of Bergen Brunswig and 1.0 share of ABC per share of AmeriSource Health.
Neither group of shareholders was taxed on the value of the merger, as no cash consideration paid.
AHC & BBC MergerKey ParticipantsGoldman Sachs & Co. acted as advisor to
AmeriSource Health Corporation. Merrill Lynch, Pierce, Fenner & Smith, advisor to
Bergen BrunswigBoth parties retained Deloitte Consulting to assess
both, determine makeup integrated organization
Financials Overview
AHC Accounting for the MergerAmeriSource Health Corporation (AHC) Year over
Year comparison; 9/30/99 to 9/30/00.Current ratio - 1.42x to 1.32x, Unfavorable.A/R Turnover – 15.93 days to 18.61 days,
Unfavorable with a caveat.Av. Collection Period – 22.91x to 19.62x,
Unfavorable with a caveat.Inventory Turnover – 7.85x to 7.39x, Unfavorable.
AHC Accounting for the MergerDebt/Equity Ratio – 3.36x to 1.46x, Favorable with a
caveat.LTD/Assets – 0.27x to 0.17x, Favorable.Times Interest Earned – 2.79x to 3.37x, Favorable.Total Margin – 0.01x to 0.01x, No change in
Favorability.Return on Assets (ROA) - 0.03x to 0.04x, Very
Favorable.
AHC Accounting for the MergerReturn on Investment (ROI) – 0.41x to 0.35x,
Unfavorable.Earnings per Share (EPS) – 1.32x to 1.90x,
Favorable.Price/Earnings (P/E) ratio – 4.47x to 6.17x,
Favorable and dirt cheap!
AHC Financials
AHC Financials
BBC Accounting for the Merger 9/30/99
9/30/00
LIQUIDITYCurrent Ratio, Favorable 1.29 1.86
ACTIVITYAccounts Receivable Turnover 13.20 18.62Favorable trend, 141% increase in receivables turnover. Average Collection Period 27.66 19.60Favorable, improving by 71%Inventory Turnover 11.71 11.10The trend is Unfavorable.
BBC Accounting for the Merger 9/30/99 9/30/00
CAPITAL STRUCTUREDebt/Equity Ratio .70 1.52
Unfavorable, substantial operating loss in 2000; acquired 9 companies, depleted cash, increased debt.
Long-term debt/Assets 0.19 0.24
Unfavorable with a substantial increase in Leverage.Times Interest Earned 1.86 -4.56
Unfavorable. Net loss in 2000, increased debt.
BBC Accounting for the Merger 9/30/99 9/30/00PROFITABILITYTotal Margin 0.00 (0.03)
Unfavorable Return on Assets 0.01 (0.16)
UnfavorableReturn on Investment (ROI) 0.05 (1.04)
Unfavorable
INVESTMENT STATISTICSEarnings per Share (EPS) .60 (5.6)
Unfavorable, net loss in revenue in 2000.Price/Earnings (P/E) ratio 10.28 (2.10)
Unfavorable.
BBC Financials
BBC Financials
Amerisource Bergen Corp. Accounting for the MergerYear over Year comparison; 9/30/00 to 9/30/01.Current ratio – 1.32x to 1.36x, Favorable.A/R Turnover – 18.61x to 7.38x, Unfavorable with a
caveat.Av. Collection Period – 19.62 days to 49.93 days,
Unfavorable with a caveat.Inventory turnover – 7.39x to 3.13x, Unfavorable
with a caveat.
ABC Accounting for the Merger
Debt/Equity Ratio – 1.46x to 0.58x, Favorable.LTD/Assets – 0.17x to 0.16x, Favorable.Times Interest Earned – 3.37x to 3.71x, Favorable.Total Margin – 0.01x to 0.01x, No change in
Favorability.Return on Assets (ROA) – 0.04x to 0.01x,
Unfavorable with a caveat.
ABC Accounting for the Merger
Return on Investment (ROI) – 0.35x to 0.04x, Unfavorable with a caveat.
Earnings per Share (EPS) – 1.90x to 1.97x, Favorable.
Price Earnings (P/E) ratio – 6.17x to 9.00x, Favorable and still cheap.
ABC Financials
ABC Financials
Source: Amerisource Bergen 2010 Annual Report
ABC 2009 Financials
Analysis of the Merger
Legal, Tax and BusinessConsiderations
ABC Legal & Tax ConsiderationsFTC resistance to possible anticompetitive move.FTC objection overcome because of history of drug
price declines due to fierce competition.Purchase method of accounting.No tax impact to existing shareholders.Type A transaction, stock exchange with no cash.
ABC Business ConsiderationsBoth sets of shareholders benefitted.Bergen shareholders received a premium.The share price of the combined firms started an
upward trend that continues today.AmeriSource Bergen became # 1.The new company continued to be competitive and
innovative.The co. maintained their customer’s goodwill.
Successful or Failure?Very successfulResulting company, AmeriSourceBergen, largest of
the Big Three pharmaceutical wholesalers in US (other two companies, McKesson, Cardinal Health)
Estimated worth more than $275 billion in 2008Note: The Big Three accounted for more than 100
buyouts, since 1980
Key Goals AchievedCaptured increased market power from their horizontal
merger, which allowed the company to achieve three key goals:
Streamline online product ordering and account management
Enable efficient customer supportCreate uniform user experience across entire supply
chain
ABC Business ConsiderationsNominal cuts in sales force, no territory overlapWarehouses were centralized from 51 to 30.Laid-off employees were well-treated.Retained employees wre trained in new technology
to improve productivity.Increased buying power used to customer’s
advantage through low prices.Management concentrated on market share.
Impact on the Market“The US supply chain is set to undergo great
changes in the next decade. Although a number of external factors will have an impact, the complex relationship between each of the parties in the supply chain will be the most important….they all wish to have greater control of the process of delivering medicines to patients.”
Impact on the MarketEnhanced warehousing, distribution networkIncreased product offerings, lower costsStrengthened marketing functionIncreased supply chain efficiencies (SAP)
Questions?
Contact UsDavid Nordella
CHA, Candidate
805.991.6001
dnordella@sbcglobal.net
Victoria Pearson
MHA, Candidate
626.278.1242
Victoriap@earthlink.net
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