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Omnicare offers $457 million to buy PharMercia

Wednesday, August 24, 2011

Omnicare went public with a $457 million offer for pharmacy management services company PharMerica, sending shares of both companies surging.

Omnicare dispenses drugs for nursing homes and other long-term care centers. Omnicare CEO John Figueroa said in a letter to the PharMerica board that its CEO, Gregory Weishar, approached him about exploring a combination of the companies back in April, and Figueroa expressed interest to Weishar several times. PharMerica’s CEO was not named in the letter.

Figueroa wrote that PharMerica then refused to start negotiations. Counting PharMerica’s debt, Omnicare values the deal at about $716 million.

Figueroa said a combination of the companies would save money and broaden services, among other benefits. The CEO also said in the letter that Omnicare’s “strong preference” is to negotiate a mutually acceptable deal with PharMerica. The company’s proposal is not subject to financing contingencies.

“However, if you continue to refuse to engage in meaningful negotiations, we are prepared to submit our proposal directly to your stockholders,” he wrote.

Credit Suisse analyst Glen Santangelo said he expects either an increased bid from Omnicare, or an offer from a private equity firm that is interested in PharMerica.

“We believe PharMerica may be interested in finding a financial buyer which would keep the company intact and allow management to retain their current positions,” he wrote.

Both companies stand to benefit as blockbuster drugs like Lipitor, Plavix and others lose patent protection over the next few years. That will allow cheaper generic versions to enter the market, and it means bigger profit margins for Omnicare and PharMerica.

PharMerica accused Omnicare of “self-serving tactics” in taking the offer public. The Louisville, Ky., company said it has rejected Omnicare’s offers because they undervalue the company and are not in the best interest of PharMerica’s shareholders. PharMerica added that it is open to discussing a transaction, but that a deal with Omnicare could be disruptive to its customers and employees, and Omnicare is not willing to assume the risks involved in completing the proposed deal.

“Antitrust clearance … is likely to be difficult to achieve and involve lengthy administrative and court proceedings,” PharMerica said. Omnicare and PharMerica are the two largest institutional pharmacy companies in the U.S., and according to Santangelo, they control a combined 60% of the market. Santangelo said the Federal Trade Commission would probably require the companies to divest some businesses before it approved any sale.

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