Melding on Track, AmeriSource Puts Mark on New Company
By VITA REED
Nearly six months into the combination of Bergen Brunswig Corp. and AmeriSource Health Corp., company officials say they are satisfied with their progress integrating the drug distributors into AmerisourceBergen Corp.
“I think we’d rate ourselves quite high,” said Michael Kilpatric, an AmerisourceBergen spokesman. “We are six months into the project, and we have a fairly deep management team into place. We’ve already closed two distribution centers and we’ve got all of our planning done for where we want to go on new facilities.”
AmerisourceBergen expects its integration to result in an operating savings of $150 million by fall 2004, according to Kilpatric.
“We’ve lost no customers related to the merger and we’ve lost no key members of our sales force,” he said.
Officials of the two companies have touted the combination as a merger of equals, though Valley Forge, Pa.-based AmeriSource bought Orange-based Bergen. As expected, AmeriSource has put its mark on the new company.
A look at the 12 top AmerisourceBergen officials shows an even split between the two former companies. But the top two executives, Chief Executive R. David Yost and Chief Operating Officer Kurt Hilzinger, are from Ameri-Source.
Bergen’s top-ranking official, besides Chairman Robert Martini, is Chief Financial Officer Neil Dimick, though he’s leaving and a search is on for his replacement.
All of the company’s top executives, including those from Bergen, are set to be based in Valley Forge or other points east. They included Douglas E. Batezel, vice president and chief procurement officer, and Brent Martini, senior vice president and president AmerisourceBergen Drug Co.
Executives plan to regularly visit Bergen’s former Orange headquarters,now a management center,though none will be stationed there.
So far, Wall Street seems content with the combination. AmerisourceBergen’s shares, which were trading at 63 on Aug. 29, the day the merger became official, have traded between 55 and 71 in the past few months.
At recent check, AmerisourceBergen counted a market value of $6.7 billion.
“We see continued conservatism and an ‘under-promise, over-deliver’ philosophy among management,” wrote Raymond Falci, an analyst for Bear Stearns & Co., shortly after AmerisourceBergen released its first results as a merged company in January.
Several integration aspects are ahead of schedule, Falci said, including the melding of information systems, which allows for the early closure of distribution centers.
“From all indications, it appears to be proceeding smoothly,” said Jon Green, an analyst with Dresdner Kleinwort Wasserstein in New York. “Neil Dimick, the CFO, announced that he was going to be leaving, even that’s gone smoothly.”
Dimick said in December that he is leaving because he doesn’t want to leave California for AmerisourceBergen’s new headquarters. He’s staying on until a successor is found.
“The search is moving along,” Kilpatric said. “We have external and internal candidates.”
The company hopes to have a replacement for Dimick by March, he said.
How many jobs cuts will result from integration hasn’t been determined, Kilpatric said. He said there’s been about a 14% reduction at the former Bergen headquarters, “but there are still 650 people there and we would expect to have a significant presence in Orange (and) in Western general offices for some time.”
Early in the process, Kilpatric said, AmerisourceBergen officials made a key decision to separate integration work from day-to-day operations.
Terrance Haas, a senior vice president, heads the integration team, which covers areas such as human resources, supply chain and procurement.
Haas, who was unavailable for an interview last week, was AmeriSource’s senior vice president of supply chain management prior to his new assignment. AmerisourceBergen’s integration team reports to Hilzinger.
AmeriSource and Bergen announced plans to join forces in March 2001. The deal resulted in a wholesale drug distribution power with an estimated $35 billion in yearly revenue and roughly 30% market share.
McKesson HBOC Inc. of San Francisco and Cardinal Health Inc. of Columbus, Ohio, are AmerisourceBergen’s chief rivals.
As for a breakdown of anticipated savings, Kilpatric said they include: $50 million from the consolidation of distribution centers; and $30 million each from what he termed “improved operations” of distribution facilities and changes in procuring products, including generic drugs.
The company also expects to save about $35 million from reducing redundant administrative staff and the scale of the company’s technology systems, he said.
AmerisourceBergen’s integration process has been helped by the fact that it didn’t name co-executives for various positions, Bear Stearns’ Falci said in an interview.
“Often, that is just really a copout, a stopgap,” Falci said. “It’s hard to have (duplicate managers).”
“You will notice that there are no co-anything,” Kilpatric said. “We made, Dave (Yost) would say, some very hard decisions. The person who was not selected for the job where you had two of them might have been a very qualified person but didn’t fit the job at that time and that place. Clearly, you can have only one CFO, clearly you can have only one of a lot of those positions.”
AmerisourceBergen also is going to face more consolidation-related financial charges and tough decisions about integrating the rest of its operations.
The largest challenges, Kilpatric said, include making sure that customers’ needs are met without disruption. On that, he said that the separation of integration from daily operating functions helped, and getting technology systems in place.
The fate of Ameri-sourceBergen’s distribution center in Corona also has not yet been determined, Kilpatric said.
“What I can say is that Corona is a major facility with very good automation,” Kilpatric said of the Bergen facility. “It is a very modern, up-to-date facility.”
AmerisourceBergen also has a smaller center in Mira Loma.
Distribution center consolidation is a large part of AmerisourceBergen’s integration effort, according to Kilpatric.
“We started with 51; we’re going to end up with about 30,” he said.
Of those 30 centers, six will be new, though AmerisourceBergen officials haven’t yet determined where they will be built.
Consolidation is under way, Kilpatric said. During the first quarter, two Atlanta distribution centers that belonged to AmeriSource were combined.
Additionally, operations of a former Bergen distribution center in Spokane, Wash. were folded into another former Bergen center in Seattle.
Amerisource Bergen will close five more distribution centers by Sept. 30, when its fiscal year ends, Kilpatric said. Locations will be determined after AmerisourceBergen’s information technology unit, led by former Bergen official Linda Burkett, completes work on a program that allows a “bridge” from AmeriSource’s entry ordering system to Bergen’s warehousing system.
“That bridge then will allow us to do the other consolidations,” Kilpatric said, adding the company has a scheduled March completion date.
