Bergen Brunswig Corp., a $22 billion (annual revenue) medical products distributor that is struggling in a difficult sector, has been without a CEO since early November. That has given rise to both concerns and speculation on Wall Street.
“They need to find a leader,” said analyst Andrew Speller of A.G. Edwards.
Since the firing of president and CEO Donald R. Roden on Nov. 4, the company has been run by 67-year-old Chairman Robert Martini, who came out of semi-retirement to retake the reins of the family business he had relinquished to Roden in 1996.
Bergen shares, which had fallen from nearly 40 in January 1999 to 8 by Nov. 4, rallied a bit in the wake of Roden’s ouster to 10 1/2 on Jan. 13. But they have since fallen to below the 5 level late last week. Rivals have dipped since Nov. 4, too, but not as severely as Bergen. Industry leader McKesson HBOC Inc. was at 20 on Nov. 4 and 18 1/2 last week. Cardinal Health Inc. went from 44 to 37 in the same period.
The company is tight-lipped about the search for a permanent CEO, saying only that Robert Martini and the board are looking both inside and outside the firm. Martini said in November that he expected the search to take three to six months, which would suggest that now is about the time for a replacement to be named.
There is some speculation that the process could return Bergen to Martini family management, in the person of Brent Martini, Robert Martini’s son and the president of Bergen’s largest unit, Bergen Brunswig Drug Co.
The younger Martini, 40, was added to the Bergen board in December, and played a prominent role in the company’s Feb. 15 shareholders’ meeting, handling several questions from the floor.
Brent Martini also has been given the task of bringing Bergen into the Internet age, overseeing more.com, myGNP.com and HealthCentralRx.com, online business-to-consumer sites that are allied with health-information sites.
Analyst Speller said he believes Brent Martini has shown himself to be “a proven leader” in his roles, but added that he did not want to speculate on whether Martini would be a logical choice for CEO.
A company spokeswoman said Brent Martini would not be available to comment for this story.
Whether Bergen’s next CEO is another Martini or not, he or she will face a daunting task.
The firm’s prime problem: cash-flow woes stemming from what the elder Martini has acknowledged were two disastrous 1999 acquisitions: of PharMerica, which supplies drugs to nursing homes, and Stadtlander Drug Co., which makes medication to treat HIV sufferers. Bergen overpaid in both instances, Robert Martini and analysts now agree.
(Bergen is contending in a lawsuit against Stadtlander’s former parent, Counsel Corp., that it misled Bergen about the value of the unit. Counsel has denied the allegation.)
As a result of the deals, Bergen posted a fiscal fourth-quarter (ending Sept. 30) net loss of $28.5 million, after writing off $53.7 million in uncollected receivables at the two new units.
The company may decide to cut its losses. After last month’s shareholders’ meeting, Robert Martini told reporters Bergen was considering unloading the subsidiaries.
In the meantime, Bergen has hired Ernst & Young Consulting to help with reorganizing Stadtlander’s management and sales department.
“The company needs to stabilize itself and forget about earnings,” said Mike Krensavage, an analyst at Brown Brothers Harriman. “Capital requirements for a wholesale drug company are especially onerous.”
Bergen, which employs 800 in OC and 13,000 company-wide, is in an industry sector that has been hard-hit in the past year. While Bergen stock is down about 80% since March 1999, industry leader McKesson is also down about 70% in the same span.
Meanwhile, under the out-of-retirement/interim chief Robert Martini, some fixes are proceeding at Bergen.
The company recently turned to Chase Manhattan Bank for a $1.5 billion line of credit. The money will replace Bergen’s existing revolving credit lines,a $600 million outlay due next month and a $400 million account due in March 2001. Beyond refinancing the debt, the new credit line will be used for overall company needs and for working capital.
“That’s a step in the right direction,” said Krensavage. n
