DRUG MERGERS BLOCKED

McKesson among four major firms

A proposed merger involving San Francisco-based McKesson Corp. that would
have consolidated the nation's top four drug wholesalers into two companies
has been blocked by a federal judge.

U.S. District Judge Stanley Sporkin said Friday the merger of McKesson, the
biggest U.S. drug wholesaler, with the fourth largest AmeriSource Health
Corp., as well as Cardinal Health Inc.'s purchase of Bergen Brunswig Corp.,
was likely to reduce competition in the U.S. pharmaceutical distribution
industry.

According to the Federal Trade Commission, the two surviving companies
would have controlled more than 80 percent of the drug wholesale market
nationwide and almost 100 percent in some regions.

In a joint statement, the companies said a McKesson-AmeriSource appeal was
"highly unlikely."

"We are surprised and disappointed with the court's ruling," said the
company's chief executive, Mark Pulido, in the statement. McKesson declined
to elaborate beyond the release.

Cardinal and Bergen Brunswig, the No. 2 and No. 3 U.S. drug wholesalers
respectively, had not yet decided on their next move immediately following
the announcement. Debra Hadley, a spokeswoman for Dublin, Ohio-based
Cardinal, said that company would make its decision within a few days.
Attorneys for the companies previously said in court that a decision siding
with the FTC would force them to scrap the acquisitions.

Despite McKesson's disappointment, analysts who follow the company did not
think the decision would have a long-term negative impact on the
wholesaler.

Donald Spindel of A.G. Edwards & Sons in St. Louis called the decision a
mild setback for McKesson. "McKesson has a lot of things going for it right
now," he said. "Even without the acquisition, the company should be able to
achieve its growth objectives."

Kenneth Salmon of Milwaukee-based Cleary, Gull, Reiland & McDevit Inc. said
he did not think the mergers would have led to consumer price increases
because the companies could control costs through economies of scale.
"Frankly, they don't need price increases to grow these companies rapidly,"
he said.

Salmon agreed that the merger was not crucial, especially for McKesson.
"They have an awful lot of momentum in the business right now," he said.
"The merger would have been nice - icing on the cake."

The court's decision surprised many observers, for Sporkin's comments at
the end of the seven-week trial last week had suggested sympathy with the
four companies. His opinion, however, sided with the FTC on most of the key
issues in the case.

The companies "simply have been unable to overcome the FTC's charge that
going from four to two national firms would reduce the competitive balance
beyond that which is legally permissible," Sporkin wrote in a 73-page
opinion released just a week after closing arguments concluded.

Sporkin announced the news after the market closed Friday. Shares of the
four companies were mixed. Valley Forge, Pa.-based AmeriSource rose $1.81
to close at $76.13 a share. Orange-based Bergen fell $1 to $53. McKesson
fell $2.94 to $80.63, and Cardinal dropped $1.59 to $96.06.

The FTC had charged in a lawsuit filed in March that the two acquisitions
would mean higher prices and reduced service for hospitals, pharmacies and
other drug purchasers. The government antitrust agency asked Sporkin to
issue a preliminary injunction blocking the combinations.

1998 San Francisco Examiner Page A 1

Checked-by: (Joel W. Johnson)