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How OC will fit into the new AmeriSource-Bergen is still being worked out

AmeriSource Health Corp.’s pending buy of Orange-based Bergen Brunswig Corp.,which could close next month,stands to create a healthcare products distributor with $35 billion in annual sales and headquarters in Valley Forge, Pa.

For now, the two companies say they’ve started work on how they’ll integrate their operations, including what facilities stand to close and what jobs will be cut.

“It’s difficult to say what things we’ll choose that currently reside in Valley Forge, or Minneapolis,(AmeriSource has) a big center there that does their buying for them,or Southern California,” said Brent Martini, president of Bergen Brunswig Drug Co., Bergen’s largest subsidiary.

The companies have brought in Deloitte Consulting to help them determine what the new company, AmeriSource-Bergen Corp., will look like.

What is likely is that AmeriSource-Bergen should have a strong local presence, handling a big part of the combined company’s technology operations. Bergen’s Orange headquarters is set to become AmeriSource-Bergen’s Western management center, information systems center and the base for the combined company’s electronic commerce operations, according to a federal filing.

But company officials made it clear there will be job cuts. Ameri-Source Chief Executive R. David Yost, who’ll head the new operation, has said the company plans to go from a combined 52 facilities across the U.S. to around 30.

The details still are being worked out, including how many jobs are going to stay in OC, according to Martini. Bergen employs some 900 workers locally, including 300 in information systems.

“There is an appetite on both sides to pick the best processes and keep as many people that are a part of that,” said Martini, who is set to run AmeriSource-Bergen Drug Co. after the merger. “There are a lot of people who may not want to move.”

Even Martini’s location could be in play, he said. While a longtime OC resident, Martini referred to himself as “an East Coast product.” Martini’s wife is from New York, he grew up in New Jersey and his mother and sister live in the Garden State. One of Bergen Brunswig’s precursor companies was started in Bergen County, N.J.

“Being on the East Coast is not a personal issue to me,” Martini said.

Martini talked about Bergen’s OC future while attending the company’s 2001 Healthcare Congress and Manufacturers’ Exposition in Las Vegas earlier this month. About 4,000 pharmacists and other healthcare professionals attended the event.

“We’ve established a process where we are identifying the best practices of both companies,” Martini said.

Specifically, Martini said, Deloitte Consult-ing has finished gathering details about five “work threads”,information systems; sales and marketing; finance and back office operations; procurement and distribution; and human resources. After the details are analyzed, they’ll be used to help determine the new company’s structure, he said.

If the review finds that Southern California’s marketing practices work better, it would make sense to keep them here rather than moving them to Valley Forge, Martini said.

Bergen’s Orange headquarters includes marketing, finance, human resources, information resources, investor relations, legal, internal audit, security, retail services and procurement departments, according to a federal filing.

Bergen’s regional distribution center just over the county line in Corona is set to play a large role in the combined company, Mar-tini said. The center, where products are sorted through for distribution, is fully automated.

“Those types of facilities where we’ve made multi-million dollar investments are very valuable to this new entity,” Martini said.

The Corona site is Bergen’s largest or second-biggest facility, “depending on what month it is,” Martini said.

The facility, which spans 240,000 square feet, has a capacity to handle additional business “that will be a very important part of the future distribution network,” Martini said.

Technology is “a corporate asset,” according to Linda Burkett, Bergen’s chief information officer in Orange. Distribution centers such as Corona can bring value to the combined company because they reduce expenses and increase competitiveness, she said. Bergen’s technology also can help the merger go down with minimal impact on customers, she said.

Martini said there’s a willingness to do some operations both in Valley Forge and OC, “but I also think we have to be realistic,” he said. “Where there’s duplication, we will have to choose between one or another group.”

As for layoffs, Martini said officials want to “respectfully treat the folks that aren’t going to have a future (with the company). We’re still working on the best ways to do that, but I believe we’ll be very fair.”

A federal filing notes that senior management plans to make decisions about jobs based on performance history, skill experience, seniority and willingness to relocate, if necessary.

For those who stay on, Martini said the company hopes to offer them more opportunities. As for the Western management center’s functions, Martini indicated exact duties would be determined after the analysis being done by Deloitte.

But Martini did say that a majority of Bergen’s management team is here, including himself, Burkett, Chief Financial Officer Neil Dimick, Milan Sawdei, corporate secretary and chief legal officer, along with Steve Collis and Charles Carpenter, two Bergen division presidents.

Martini and several Bergen executives are serving on a committee along with AmeriSource’s Yost that will determine senior management after the merger.

“To the extent that we choose some of the processes at Bergen here, we would anticipate senior leaders of those processes to stay here,” Martini said. “We haven’t determined yet that we need to have all the senior management on the East Coast.”

Even though the top officials of the combined company,Yost and Chief Operating Officer Kurt Hilzinger ,are set to come from AmeriSource, Martini said he feels there’s “some balance of power” among executives.

For now, Bergen and AmeriSource are awaiting final word from the Federal Trade Commission. The companies recently filed documents and answered questions posed by regulators covering issues such as market size and the market share of a combined company. Regulators plan to start a 30-day review once the second request is certified.

Back in 1998, regulators quashed Bergen’s proposed buy of Dublin, Ohio-based Cardinal Health Inc. and a separate proposed deal between AmeriSource and McKesson HBOC Inc. of San Francisco.

At that time, the FTC feared that the combinations would slice the wholesale drug distribution field in half, leaving just two big players. The Bergen-AmeriSource deal stands to create a third big player alongside Cardinal and McKesson.

“This is more (a case of) four competitors going down to three, and No. 3 becoming a much tougher competitor with more parity to No. 1 and 2,” Martini said.

At one point, Martini sounded enthusiastic about the deal’s prospects: “The merger’s on,” he said.

Bergen and AmeriSource expect to hear from regulators early next month and present the deal to their shareholders soon after. The deal could close by the end of August, they said.

If regulators sign off, the next steps include building a corporate structure, picking a unified technology platform and filling out the company’s senior leadership ranks.

Robert Martini, Brent’s father and current chairman and chief executive, is set to become non-executive chairman. The elder Martini, who came out of semi-retirement in 1999 to run the business, has spent much of the past two years shoring up Bergen.

Bergen shares,which fell to as low of around 5 early last year as the company was wrestling with a pair of difficult acquisitions,were trading at about 20 last week. Bergen counted a market value of $2.7 billion as of last week, compared to AmeriSource’s $3 billion.

“It’s very gratifying to be back in the financial community as a strong performer,” Brent Martini said. “A year and a half ago, Bergen was in a very difficult spot.”

While AmeriSource is buying Bergen, Martini asserted that the company’s improved finances have allowed it to “do a merger vs. just being acquired,” he said.

“I think that our people really believe this is the right thing for the long-term future of the company and themselves,” he said.

AmeriSource-Bergen stands to have a presence in 50 states as well as Guam. Right now, neither company operates in Mexico, Canada or Western Europe. Yost has said that the combined company’s main focus would be on the U.S. n

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