McGaw, the No. 3 maker of intravenous products, will be acquired in a $440 million stock swap by Miami-based IVAX Corp., which holds interests in drugs and medical diagnostics.
Under the agreement, announced last week, McGaw stockholders will receive about $16 per share in IVAX common stock. That puts the total value of the deal at about $440 million. Irvine, Calif.-based McGaw's 1993 revenues are estimated at $335 million, and IVAX's are placed at $700 million.
The transaction requires the approval of government regulators and both companies' stockholders.
If completed, it would broaden both companies' customer bases and product lines. McGaw's primary customers have been hospitals, nursing homes, surgery centers and home-care companies. IVAX, a leading maker of generic drugs, has worked mostly with pharmacies, physicians, clinics and HMOs. It does about a third of its business overseas.
The combined company should be better able to compete against hospital supply giants Baxter International and Abbott Laboratories, industry analysts said. Abbott and Baxter have an edge in many markets because they are able to supply a broad line of products, the analysts said.
In the $2.4 billion hospital IV products industry, Baxter is the leader, with 50% of the market. Abbott claims 40% of the market, and McGaw 10%. Recently, McGaw has been battling to keep its largest customer, the U.S. Department of Veterans Affairs.
"The most significant aspect of the deal is the possibilities that open up down the road to put IVAX's generic drugs, now only in oral form, in some kind of IV product," said Vivian Wohl, an analyst at the San Francisco-based investment banking firm of Robertson, Stephens & Co.
The deal also should help McGaw develop prepackaged antibiotic drugs, a large chunk of the IV market now left to rivals Baxter and Abbott, said John Putnam, an analyst at the Baltimore-based investment banking firm Alex. Brown & Sons.
News of the acquisition drove up McGaw's stock $4.63 to $15.38 by mid-day on Jan. 6 in national over-the-counter trading. IVAX's shares, which trade on the American Stock Exchange, fell 13 cents to $20.
The deal was signed less than a year after McGaw went public. It raised speculation that James Sweeney, McGaw's chief executive officer who founded Caremark, would leave for another healthcare venture. The companies didn't release information on executive positions, but a McGaw spokesman said, "Mr. Sweeney will continue to serve in a strate gic role for Mc Gaw, but we haven't deter mined what his title will be."
In other devel opments, McGaw was still in limbo last week regarding a five-year contract for IV products with the Department of Veterans Affairs.
Last month, the VA assigned the deal to McGaw, which won the previous contract in 1988. Shortly after that, the VA received word that two bidders had filed protests against the award with the General Accounting Office, said Nancy Darr, who heads the VA's National Acquisition Center.
That doesn't mean the award won't stick. The GAO must decide whether the protests have merit and whether any action should be taken.
The history of the contract, however, illustrates the complexity of the VA procurement process and the fierceness with which companies fight for business. Laws meant to make sure taxpayers get the best deal and guarantee bidders a fair fight also lay the groundwork for protest after protest.
In July, the VA disqualified McGaw's $129.7 million bid, the lowest of three, because it contained higher prices in the contract's initial years. Calling the bid "materially and mathematically unbalanced," the VA agreed with a protest filed by Baxter (Aug. 2, 1993, p. 9). Baxter bid $132.4 million.
The VA has bought about $30 million each year in McGaw products, or 10% of the company's 1992 sales, largely under the contract awarded in 1988. The 1988 contract, set to expire last September, has been extended until a new one is nailed down.
At one point, Abbott, which bid $154.9 million, was the only company remaining in the competition because Baxter had been suspended from new government contracts.
The VA then said it would solicit new bids from Abbott and McGaw. In December, it reinstated McGaw's original bid after an appeal by the company and awarded the contract to McGaw from the initial proposals. Baxter's suspension was lifted the next day.-Lisa Scott