New bid boosts health stock

NeighborCare's shares increase nearly 58%

Omnicare tries takeover again

Institutional pharmacy rejected offer in April

May 25, 2004|By Cyril T. Zaneski | Cyril T. Zaneski,SUN STAFF

A $1.5 billion bid for NeighborCare Inc., the Baltimore-based institutional pharmacy, drove up its stock price almost 58 percent yesterday, the largest percentage gainer on the Nasdaq stock market.

Omnicare Inc. of Covington, Ky., the largest provider of pharmaceutical services to long-term care facilities, is offering to buy outstanding shares of NeighborCare common stock for $30 a share.

The proposal, which includes the assumption of NeighborCare's net $250 million debt, represents a 70 percent premium over the company's $17.67 stock price at Friday's close.

NeighborCare's stock closed at $27.91 yesterday, up $10.24. More than 7.4 million shares traded, 21 times its average daily volume.

"Given the premium we're offering, we're confident we'll reach a mutually beneficial agreement," Joel F. Gemunder, Omnicare's president and chief executive officer, told analysts in a conference call yesterday.

"It has the certainty of cash," he said of the offer. "And it can be accomplished very quickly."

NeighborCare's board of directors rejected a similar Omnicare offer last month. The company said in a statement yesterday that its board would review the new proposal with the assistance of Goldman, Sachs & Co. and Wachtell, Lipton, Rosen & Katz, the New York law firm.

Both Omnicare and NeighborCare provide pharmaceuticals and medical supplies and equipment to nursing homes and assisted-living facilities. NeighborCare operates in 32 states and the District of Columbia. Omnicare is in 47 states and the District of Columbia.

NeighborCare provides medicine for about 11 percent of the nursing home market, making it the third-largest institutional pharmacy, behind Omnicare and PharMerica Inc. of Tampa, Fla.

The purchase of NeighborCare would expand the number of beds serviced by Omnicare by 256,000, or 24 percent.

"We see this as an exciting opportunity for both companies," Gemunder said. "It gives us overlapping geographical coverage, purchasing on drugs and operating economies of scale."

With the ranks of the elderly growing and a revamped Medicare law adding a prescription benefit for seniors, Omnicare has been expanding rapidly. While final regulations have not been published, there are provisions in the Medicare law dealing with pharmacy services for nursing home and other long-term care beneficiaries.

"I think Medicare is going to be positive for our industry," Gemunder said in an interview yesterday. "We think that we will have an exciting role to play as that benefit rolls out."

Last year, Omnicare acquired NCS Healthcare Inc. of Cleveland and SunScript Pharmacy of Albuquerque, N.M., to push the number of beds it serves past 1 million.

It also bought Arlington Clinical Pharmacy of Reno, Nev., which provides medicines in the rapidly-expanding market for specialty drugs for treating diseases like heptatitis and autoimmune disorders. In all, Omnicare spent more than $530 million on acquisitions last year.

As it expanded, Omnicare's share prices have risen from the mid-$20 range a year ago, peaking at $47.80 in February. Omnicare closed yesterday at $40.60 a share, up $1.45, or 3.7 percent, on volume of 1.67 million shares on the New York Stock Exchange.

Responding to questions about whether the Federal Trade Commission would approve an Omnicare-NeighborCare merger, Gemunder declined "to speculate on what the government agencies do." But he said that the company's lawyers had scrutinized "all aspects of our offer."

"We have approached this in a very analytical, careful and adroit manner," he said. "We are very confident of our ability to consummate this deal."

In an interview, he emphasized further that Omnicare's competitors were not other institutional pharmacies, but retail pharmacies. "They are our largest competitors now, the local pharmacies," he said.

NeighborCare was founded in 1980 by Michael Bronfein, now a venture capitalist in Owings Mills, and his brother-in-law, pharmacist Stanton Ades. The company grew into a small retail pharmacy chain, with about 30 stores in hospitals and medical office buildings.

A nursing home chain, Genesis Health Ventures Inc. of Kennett Square, Pa., bought NeighborCare in 1996. Genesis spun off the pharmacy business in December.

After being combined with other Genesis operations, NeighborCare has about 6,000 employees and annual revenue of about $1.3 billion.

Gemunder said NeighborCare would provide "a very deep pool of management talent, which will carry the combined company well into the future."

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