NEW YORK (CNNfn) - Generic drug maker Ivax Corp., struggling from falling prices and weak earnings, on Monday said it will merge with drug wholesaler Bergen Brunswig Corp. in a $1.65 billion stock swap.
Executives at the two companies rushed to tout the efficiencies of the new combination and the possibility for lower generic drug prices in the future, but investors were not easily impressed and the stocks of both companies fell sharply.
The first marriage between a drug distributor and a drug maker took Wall Street by surprise.
The stock arrangement actually pays Ivax shareholders less than the current market value for the company. The deal values Ivax at $1.65 billion, or $13.75 per share. That price is more than $2 a share below the stock's closing price Friday. Executives agreed to the lower value because Ivax announced charges that will cut into quarterly earnings.
Under terms of the agreement, Ivax shareholders will receive 0.42 share of stock in the merged company for each existing share. Bergen shareholders will swap each existing share for one new share. The new Miami-based company will be called BBI Healthcare Corp.
For Ivax, the agreement follows other attempts to find a partner that could rescue it from financial troubles. Once a gem on Wall Street, stock in the company has suffered from falling drug prices and an oversupply of inventory by distributors and retailers.
In 1995, Ivax attempted a merger with Norwegian firm Hafslund Nycomed. Shareholders in Norway rejected the agreement and investors in the United States criticized the deal's lack of a premium. The company has since headed into financial difficulties that undermined investor confidence and rattled the stock.
Despite the difficulties, Ivax remains as one of the world's largest producers of generic drugs and surgical supplies. Its revenues topped $1.26 billion in 1995. Analysts predict the company could recover as revenues in the generic drug market soar.
Bergen, which reported $9.9 billion in sales for fiscal 1996, is billing the deal as a "merger of equals." Top executives at both firms will assume leadership positions in the new company. Bergen's recently-elected chief executive officer, Donald R. Roden, will become CEO of the merged company and the chairmen of both firms will serve as co-chairmen.
However, Bergen appears to have an advantage in picking one additional board member. Nonetheless, Ivax shareholders will control 56 percent of the combined entity's stock, compared to 44 percent held by Bergen shareholders.
Executives at the newly formed company, BBI, spent Monday trying to reverse street sentiment on the deal, and to tout its long-term benefits for consumers.
Phillip Frost, chairman and CEO of IVAX, said that the deal will create "a new type of company that will provide greater efficiency
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One trend that might benefit this new company is that many patents on drugs have expired, allowing generic drugs to gain more market share. Industry analysts predict sales of generic drugs will more than double to over ten billion dollars by the year 2000.
On Monday, Ivax fell 3-3/8 to close at 12-1/2 on the American Stock Exchange. Bergen Bruswig fell 5-1/8 to finish at 27-5/8.