AmerisourceBergen and Kindred Healthcare to Form New Institutional Pharmacy Company

Strategic Insights -

AmerisourceBergen Corp. and Kindred Healthcare Inc. have announced plans to spin off their institutional-pharmacy businesses into a new publicly traded company, serving nursing homes, hospitals, and other healthcare facilities. The deal aims to create the second-largest company in the institutional-pharmacy market, with a combined revenue of approximately $1.9 billion and serving 330,000 beds in 41 states. The new company is expected to benefit from the growth of the nursing home and hospital market under the new Medicare drug benefit.

Key Takeaways:

  • The new company will have a combined revenue of approximately $1.9 billion and serve 330,000 beds in 41 states.
  • The company will have earnings, before interest and income taxes, of about $75 million in the first six months of 2006, with estimated cost savings from the combination of about $30 million.
  • The new company will be the second-largest in the institutional-pharmacy market, after Omnicare Inc.
  • The deal will enable the combined companies to be more efficient and face continued pressure to hold down costs and prices.
  • R. David Yost, CEO of AmerisourceBergen, stated that the deal is "all about the growth, scale, and opportunity."
  • Each business will distribute $150 million cash tax-free to its parent company, then be spun off, followed immediately by a stock-for-stock merger.
  • AmerisourceBergen will focus on its main business of drug wholesaling to retail and mail-order pharmacies after the deal closes.
  • Kindred will focus more on its hospital, nursing-center, and contract rehabilitation businesses after the deal closes.

Statistics:

  • Combined revenue of the new company: approximately $1.9 billion
  • Number of beds served by the new company: 330,000, in 41 states
  • Estimated earnings, before interest and income taxes, in the first six months of 2006: $75 million
  • Estimated cost savings from the combination: $30 million
  • Number of employees in the institutional pharmacy business: not specified
  • Annual revenue of AmerisourceBergen: more than $59 billion
  • Annual revenue of Kindred: $4.3 billion
  • Market share of the new company for pharmaceutical services to the elderly: approximately 15%

Sources:

  • "AmerisourceBergen, Kindred Healthcare Join to Form New Pharmacy Unit" by Linda Loyd, The Philadelphia Inquirer (August 8, 2006)
  • Data provided in the article, citing expected financial performance and market share.