After antitrust regulators last week moved to put the kibosh on a massive consolidation among drug wholesalers, the four companies whose deals would die were left to decide whether to fight or move on.
The Federal Trade Commission voted 3-1 to oppose a pair of mergers it said would create two drug wholesaling gargantuans whose 80%-plus market share would be anti-competitive and ultimately mean higher prices for customers, including hospitals.
At deadline, the FTC was poised to file for preliminary injunctions in federal court in Washington to block the deals.
After the setback, Dublin, Ohio-based Cardinal Health and Orange, Calif.-based Bergen Brunswig Corp. were the first to say they would consider fighting the FTC in court.
Should Cardinal Health and Bergen Brunswig combine, the new company would have more than $22 billion in annual sales.
"Obviously, we disagree with the FTC's analysis of the drug wholesaling industry and the impact of our merger with Bergen," said Robert Walter, chairman and chief executive officer of Cardinal Health. "We are convinced that our transaction is pro-competitive and would both lower prices and increase our services to our customers."
But not all potential customers were so sure.
"I had a concern with the mergers because (they) would have created two very big companies that all of a sudden could affect our prices on drugs by charging stocking fees," said Bert Patterson, a vice president for pharmacy services with the Premier hospital alliance in Westchester, Ill. He also questioned the distributors' claims that mergers would lower prices through greater efficiency, saying they had already hit bottom. "Prices couldn't go down; they could only go up."
Late last week, San Francisco-based McKesson Corp. and Malvern, Pa.-based AmeriSource Health Corp. said they too were evaluating fighting the FTC in court. Calling the FTC analysis faulty, the companies said in a statement: "The FTC's view ignores market realities."
McKesson and AmeriSource would have combined annual sales of more than $26 billion.
A legal battle might unfold but is unlikely to change the outcome, according to one industry watcher.
"I believe the companies will litigate just to have their day in court, but I don't see that overturning" the FTC's action, said Lawrence Marsh, an analyst at Salomon Smith Barney, New York.
Marsh echoed the companies' dissatisfaction with the FTC's analysis. For instance, the commission's estimate of 80% market share for the companies was too high, he said. For 1997, Marsh estimated the companies' combined market share at 72%.
He added that it was presumptuous for the FTC to conclude that prices would increase if the deals went through, given historical trends.
Despite the regulatory speed bump, Marsh remains bullish on the companies' prospects, saying their prospects are good whether or not the mergers eventually succeed.