A Federal Trade Commission investigation is delaying the pending $500 million marriage of a major drug distributor and a big pharmacy management firm.
Last week, Cardinal Health, a Dublin, Ohio-based drug distributor, said the FTC made a "second request" for information regarding its proposed acquisition of Owen Healthcare, a Houston-based pharmacy management company.
The two companies announced their transaction-initially valued at nearly $500 million-last November, and then sought antitrust clearance from the FTC (Dec. 2, 1996, p. 12).
Cardinal spokeswoman Debra Dendahl Hadley said the FTC's request was "fairly broad," and "the first thing we'd like to do is narrow the extent of the inquiry." In any case, a response will take "several weeks" to complete, Hadley said.
By statute, the FTC will have 20 days to conclude its review of the deal after receiving the documents.
Cardinal's bid for Owen is part of a larger strategy to add highly profitable and fast-growing units that extend its traditional drug distribution business.
"We're focusing on improving our value along the supply chain," Hadley said. "We don't want to be just a middleman between a manufacturer and a customer."
David Risinger, an industry analyst at Morgan Stanley & Co., praised the Owen acquisition. "This gives Cardinal an additional value-added service they can offer to customers, and I expect them to tie in the drug distribution function with the pharmacy management to achieve significant economies of scale."
Despite the FTC's investigation, both companies said resolving any antitrust questions is not expected to significantly affect the timing or outcome of the proposed transaction, which they predict will still close during the first quarter.
Analyst Risinger concurred. "These companies are mirror images of one another," he said. There are some areas of overlap, he said, but a merger should not create significant anti-competitive barriers.
Last May, Cardinal acquired Pyxis Corp., the leading maker of automated teller machine-like dispensing equipment used to control drug inventory with more than 1,600 customers. Pyxis competes with Owen's Meditrol Automated Systems unit, which has approximately 90 accounts.
Cardinal also has a contract pharmacy management operation called Allied Pharmacy with about 60 accounts compared with Owen's 330 hospital customers. In both areas, however, markets are probably sufficiently fragmented to blunt FTC concerns, Risinger said.