Takeover target is upbeat, despite loss

NeighborCare blames red ink on hostile bid

August 06, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

NeighborCare Inc. is on target with a plan to cut expenses and expand sales, its chief executive officer said yesterday, even though the Baltimore institutional supplier of pharmaceuticals reported a loss for its most recent quarter due to costs from battling a hostile takeover.

"The plan we put together is on track," said John J. Arlotta, who runs the company that fills prescriptions for nursing homes.

Omnicare Inc., a bigger rival, tried to buy NeighborCare in February, but was rebuffed by Arlotta and NeighborCare's board. It then took its $30-a-share offer to investors. Omnicare said last week that 46 percent of NeighborCare shares had been tendered in response.

But Arlotta said yesterday that Omnicare's announcement "doesn't change our view of the world." He said the offer, unchanged since February, didn't represent fair value, and that his company would be worth more after it fully executes its business plan.

NeighborCare closed at $17.67 the day before Omnicare made its offer public in May. NeighborCare shares closed yesterday at $25.69, up 96 cents.

While Omnicare is approaching half of NeighborCare's shares, Arlotta said, "getting to 50 percent really doesn't mean anything. They have to get to 80 percent" under the terms of their tender offer and under NeighborCare's articles of incorporation.

Omnicare, however, believes "NeighborCare's shareholders have sent a clear message to their board and management that they support this transaction and want to receive full value now for their investment," said Jamie Moser, a spokeswoman for Omnicare, which is based in Covington, Ky.

Omnicare's offer expires Aug. 31. The effort of Omnicare, the nation's largest institutional pharmacy company, to buy NeighborCare, the third-largest, is undergoing federal antitrust review.

On Wednesday, NeighborCare posted a loss of $6.8 million, or 16 cents a share. That reflected about $18 million in one-time charges, most of which were related to the defense against Omnicare's bid.

Arlotta said yesterday that that amount represented NeighborCare's estimate of its total cost for investment bankers, lawyers and public relations experts to battle Omnicare.

The company did not expect significant charges beyond that in future quarters, he said. NeighborCare employs 265 people at three downtown locations, up from 155 last year.

In a research report yesterday, Jerry L. Doctrow and Eric T. Gommel, analysts at Legg Mason Wood Walker, said, "Overall, we saw the NeighborCare quarter as satisfactory given that [the company] had previously warned of pricing pressure."

In a conference call with analysts yesterday, Arlotta said some states had reduced Medicaid reimbursements, and that some customers, as contracts were renewed, were asking for prices to be reduced to Medicaid levels.

However, he told analysts, NeighborCare is proceeding with increased automation and development of a drug repackaging facility in Rossville, in Baltimore County, that will make its pharmacies more efficient.

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