Odds favor big guy in pharmacy takeover fight

May 30, 2004|By JAY HANCOCK

WHO WOULD you root for? Omnicare - enormous, voracious and alien? Or NeighborCare - friendly, new, right on your block and happy to lend a cup of Metamucil in an emergency?

I know who I want. But I'm not sure I would bet on them.

NeighborCare Inc. is a moderately large Baltimore corporate headquarters company, employing about 450 downtown workers and dispensing more than $1 billion in drugs each year, mostly to nursing homes. It's a promising growth story and a plum for the local economy.

And at the moment it looks like Troy facing down Brad Pitt and the Greek army.

Omnicare Inc., with $3.5 billion in annual drug sales and a Kentucky headquarters across the river from Cincinnati, has offered $1.5 billion in cash and debt assumption for rival NeighborCare. NeighborCare has asked Omnicare to take the $1.5 billion and shove it up an IV drip.

It's a good, old-fashioned takeover fight, with both sides hiring investment bankers, merger lawyers and crack public relations pros.

Omnicare, which grew to its present size through scores of acquisitions, wants to absorb NeighborCare into its maw and solidify its position as the No. 1 drug vendor to nursing homes.

NeighborCare, No. 3, has operated as an independent outfit for only a few months since its split from nursing-home chain Genesis Health Ventures. It wants to stay single.

Omnicare says it will pay $30 a share for NeighborCare, whose stock soared from below $18 past $29 after the offer became public last week. But NeighborCare, which claims owners will fare better by rejecting Omnicare, is imitating an immovable object.

"We have a pretty good view of what we think we can do with the company," NeighborCare CEO John J. Arlotta said in an interview. "We think it's much better for us to stay independent and keep moving ahead and create a lot more value than what is on the table for our shareholders."

NeighborCare is registered in Pennsylvania, where boards mulling mergers may consider the welfare of employees and communities as well as that of shareholders. That makes hostile takeovers more difficult.

NeighborCare's bylaws include a poison pill, which under some circumstances triggers a flood of new shares for existing owners, diluting a raider's stake. And analysts worry the federal government would block an Omnicare/NeighborCare marriage on antitrust grounds.

Arlotta has already said no to Omnicare four times, by his account. The fourth came last week after Omnicare made its interest public. The third came two months ago after Omnicare made a private, written offer of $30 a share.

The first came in February after a phone call to Arlotta from Omnicare boss Joel F. Gemunder. The second came over a March 2 dinner Gemunder and Arlotta had in Miami when they were in town for an industry conference, Arlotta said.

"I would not have characterized these discussions at all as serious discussions," Arlotta said. "I said, `I really see no compelling reason to do this.'"

Gee, that sounds like what NCS Healthcare said two years ago when it was approached by Gemunder about a buyout.

NCS, the No. 4 drug seller to institutions at the time, rejected Omnicare at least three times. Its anti-barbarian spray may have been even more powerful than NeighborCare's.

It was registered in management-friendly Delaware and had already sewn up its own merger, agreeing to be bought by Genesis Health Ventures. (Yes, Genesis used to own NeighborCare. That's another story.) Major NCS shareholders had already signed deals to sell out to Genesis.

But Gemunder, who once said, "The sun never sets on our acquisition activity," was unrelenting. He made a better offer, sued NCS, won a landmark case in Delaware and busted up a Genesis-NCS wedding that had progressed almost to the honeymoon hotel. What's left of NCS today is part of the Omnicare machine.

Gemunder was unavailable for an interview, a spokesman said. But when asked about NeighborCare's poison pill last week, he told a Wall Street analyst, "We know what our options are. And given the premium we were offering, we're confident we are going to reach a mutually beneficial agreement."

Omnicare to win in the fifth, anybody?

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