Suitor changes takeover strategy

Omnicare to seek 3 seats on NeighborCare board

Move sets stage for proxy fight

Acquisition battle pits large institutional pharmacies

December 24, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

Moving its takeover battle to another front, Omnicare Inc. announced yesterday that it plans to have three candidates run for seats on the board of directors of Baltimore-based rival NeighborCare Inc.

That sets up the possibility of a proxy fight leading up to NeighborCare's annual shareholders meeting next year. A date hasn't been set for the meeting; this year's meeting was June 15.

Proxy fights are a tactic often used by spurned suitors in takeover attempts. In its 18-month-long battle to buy PeopleSoft Inc., Oracle Inc. last month threatened a proxy fight for PeopleSoft board seats. The two companies reached agreement this month when Oracle sweetened its offer.

In a statement, John J. Arlotta, NeighborCare's chairman and chief executive officer, said the Omnicare slate was "clearly a self-serving attempt to benefit their shareholders at the expense of ours." Arlotta repeated his argument that NeighborCare's growth plans will make the company worth more than Omnicare has offered.

Omnicare, the country's largest "institutional pharmacy" company - it fills prescriptions for nursing home and assisted-living residents - has been trying since April to buy NeighborCare, the third-largest institutional pharmacy company. NeighborCare's board has consistently rejected Omnicare's overtures.

In June, Omnicare sought to go around the board and take its case to NeighborCare's shareholders, offering $30 a share. So far, according to an Omnicare filing this month, about 57 percent of NeighborCare's shares have been offered to Omnicare at the $30 price - but NeighborCare's bylaws say the company can't be sold unless 80 percent of the shares are voted to accept the deal.

NeighborCare shares, which closed at $17.67 the day before Omnicare made its offer public, are already trading above $30. They closed yesterday at $30.87, up 18 cents for the day. Omnicare shares gained 12 cents, closing at $34.30.

Yesterday, Omnicare announced it would seek proxies from shareholders to support its candidates for the three NeighborCare board seats due to come open next year. NeighborCare has eight members on the board, elected for staggered terms. If the initial Omnicare slate is successful, the would-be acquirer could run more candidates and potentially win a board majority in 2006.

In a statement, Joel F. Gemunder, president and chief executive officer of Omnicare, said the response so far to its takeover bid was "a clear indication that NeighborCare's shareholders recognize the benefits of an Omnicare-NeighborCare transaction. We believe shareholders are entitled to the opportunity to accept our premium offer for their shares."

Spokeswomen for both Omnicare and NeighborCare said company officials would not comment beyond their prepared statements.

NeighborCare was launched in Baltimore in 1980 with a single retail pharmacy. Although it retains some retail outlets in the Baltimore region, it has come to specialize in serving nursing homes. It was acquired in 1996 by the nursing home chain Genesis Health Ventures Inc., and then was spun off as a separate company about a year ago. It has about 6,000 employees nationally, including more than 250 at three downtown headquarters locations.

The proposed acquisition is being reviewed by federal antitrust officials.

Omnicare controls about 35 percent of the institutional pharmacy market; NeighborCare about 11 percent. Omnicare has argued, however, that the antitrust review should consider the deal in the context of the entire pharmacy market, not just the institutional segment.

Some analysts have predicted that if antitrust clearance is given, Omnicare will eventually secure the deal by raising its bid. Jerry L. Doctrow and Eric T. Gommel, stock analysts for Legg Mason Wood Walker Inc. in Baltimore, predicted in May that an offer in the mid-30s was "probable" and that NeighborCare would find it "difficult to resist" such a bid.

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