Suitor's offer is firmly rejected

NeighborCare dismisses Omnicare takeover bid as `blatantly opportunistic'

Institutional pharmacies battle

No. 1 trying to buy No. 3

proxy battle could loom, or a different offer

May 26, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

Baltimore-based NeighborCare Inc. slapped down yesterday a takeover bid from Omnicare Inc., its larger rival in the business of filling prescriptions for nursing homes.

A day after receiving Omnicare's $1.5 billion offer, NeighborCare's board unanimously rejected it, terming it "blatantly opportunistic," a company announcement said.

"The best case for this company is to remain independent," John J. Arlotta, NeighborCare's president and chief executive officer, said in an interview yesterday.

Although Omnicare offered $30 a share - 70 percent above NeighborCare's closing price before the bid - Arlotta said the price was "far from the value this company will have in two to three years."

The offer essentially was the same one rejected by NeighborCare's board last month after it was made privately, Arlotta said. Omnicare's offer included the assumption of $250 million in NeighborCare debt.

Joel F. Gemunder, president and chief executive officer of Kentucky-based Omnicare, said in a statement, "We are well advised and know the options available to us. However, it is our strong preference to work together with the NeighborCare board to reach a mutually agreeable transaction. We reiterate that we are willing to sit down with the NeighborCare board to discuss all aspects of our compelling offer."

The rejection, and Omnicare's indications that it intends to press forward, could set the stage for a lengthy proxy fight, or a different offer.

Jerry L. Doctrow and Eric T. Gommel, stock analysts for Legg Mason Wood Walker Inc. in Baltimore, predicted in a research report yesterday that an offer with a share price in the mid-30s was "probable" and would be "difficult for [NeighborCare] to resist."

NeighborCare's share price, which rose 58 percent Monday in response to Omnicare's offer, continued to rise yesterday, gaining $1.09 to close at $29 on the Nasdaq stock market. That's 64 percent higher than NeighborCare's closing price of $17.67 Friday.

Omnicare shares added $2.05 yesterday to close at $42.65, a increase of 9 percent from their close Friday.

NeighborCare was founded in Baltimore in 1980 as a single retail pharmacy. It opened additional pharmacies - it still operates 30, most of them in the Baltimore area - but gradually began to concentrate in the "institutional pharmacy" business, using large facilities to pack pills into bubble packs and trays for delivery to nursing homes.

The company was acquired in 1996 by a nursing home chain, Genesis Health Ventures Inc., of Kennett Square, Pa., before splitting off in November. NeighborCare has about 6,000 employees nationally, including 400 to 500 in three downtown Baltimore headquarters offices.

NeighborCare is the third-largest institutional pharmacy in the country, serving about a quarter of a million nursing home beds. It is dwarfed by No. 1 Omnicare, which has grown through aggressive acquisitions and serves about a million beds.

In a letter to Gemunder, Arlotta said he and the board "see your proposal as nothing more than a cynical attempt to seize for Omnicare the long-term value and success of our great company, which rightly belongs to NeighborCare's shareholders and other constituencies."

To say the Omnicare proposal amounted to a 70 percent premium was "misleading," Arlotta said, because it was based on the $17.67 Friday close. NeighborCare shares have generally traded much higher. (Since NeighborCare became an independent company in November, its average share price has been $22.59, according to Bloomberg News.)

Although the number of beds served by NeighborCare was unchanged for the four years before the split from Genesis, it has increased 6 percent since then, Arlotta said. The company was attracting new customers by helping nursing homes control drug costs, he said.

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