McKesson to Buy Rival Drug Distributor : $500-Million Deal Gives It a Market Share of 30%

NEW YORK —  McKesson Corp., the nation’s largest wholesaler of drugs, toiletries and sundries, said Tuesday that it agreed to buy Alco Health Services Co., another major distributor of pharmaceutical products, for $500 million.

With the acquisition, McKesson will take a giant step forward as the undisputed leader in the drug wholesaling business, analysts and industry sources said.

McKesson, which now commands 23% of the market, will control at least 30% of the $19-billion industry after buying Alco, according to the National Wholesale Druggists’ Assn., a trade group.

San Francisco-based McKesson said it will start a $30-a-share tender offer for all Alco stock no later than June 27. About 49.3% of Alco’s stock will be purchased from Alco Standard Corp., a diversified manufacturer and distributor, which spun off the company in 1985.

Analysts described the purchase price as “fair.”

Ranked No. 3

Alco stock closed at $29.50, up 50 cents in the over-the-counter market. McKesson closed at $33.875, up 37.5 cents on the New York Stock Exchange.

Alco Health, based in Wayne, Pa., is the nation’s third-largest independent drug wholesaler. It also distributes health and beauty aids, cosmetics and fragrances and other merchandise including toys, jewelry and automotive products.

“The acquisition of Alco Health Services reflects our strategy of focusing our resources on the distribution of prescription drugs, health and beauty aids, and general merchandise to drugstores, supermarkets and mass merchandisers,” said Thomas Field Jr., McKesson president and chief executive, in a statement.

Over the last 10 years, the San Francisco-based company has invested about $1 billion in its drug distribution businesses and divested many unrelated operations, Marvin Krasnasky, a McKesson spokesman, told Reuters by telephone.

McKesson is now divesting its wine and spirits businesses, which had 1987 sales of about $740 million.

“With the Alco acquisition, drug and health care will represent about 85% of our revenues,” Field said in his statement.

Slight Dilution

Last year, this business accounted for $5.2 billion or roughly 71% of McKesson’s $7.3 billion in annual revenue.

Field said McKesson will also continue to invest in the growth of its other businesses: bottled drinking water, car care products and the management of prescription drug benefit programs.

Krasnasky said the acquisition will only slightly dilute McKesson’s earnings. McKesson earned $95 million on sales of $7.28 billion for the 12 months ended March 31, 1988.

Last year, Alco Health earned $18 million on sales of $1.7 billion.