Amerisource Bergen to buy animal-drugs firm for $2.5B

AmerisourceBergen Corp., of Chesterbrook, already among the biggest U.S. distributors of pharmaceuticals for humans, is moving into the faster-growing and more profitable animal-drugs market with the $2.5 billion acquisition of MWI Veterinary Supply Inc., of Boise, Idaho, the companies announced Monday.

"We believe that it's the next logical extension of our business," Tim G. Guttman, AmerisourceBergen's chief financial officer, told analysts on a conference call to discuss the deal, which is expected to close during the quarter ending March 31 and to add to AmerisourceBergen's earnings immediately.

AmerisourceBergen's shares tumbled 2.2 percent, or $2.07, to close at $90.93 on Nasdaq. Shares of MWI, which distributes drugs, parasitic treatments, and vaccines for both pets and farm animals, shot up 8 percent, or $14.35, to $190, matching the value of the AmerisourceBergen offer.

Steven H. Collis, AmerisourceBergen's chief executive, said on the call that "the $100 billion total global animal-health market and $22 billion medication and vaccine segment offer a compelling opportunity to diversify our business into new markets while staying within the pharmaceutical channel."

U.S. sales of animal-health products increased from 2000 through 2013 at an annual rate of 5.8 percent, MWI said in a recent investor presentation. By comparison, overall U.S. sales of pharmaceuticals increased at an annual rate of 3.3 percent over the same period, data from Pharmaceutical Research and Manufacturers of America show.

Other favorable characteristics of the animal-health market include the fragmentation of the customer base into tens of thousands of small veterinary practices and the relative lack of insurers, which allows veterinary distributors to charge more and have higher profit margins.

For example, MWI's average operating margin during the five years ended Sept. 30 was 4.6 percent, compared with 1.35 percent for AmerisourceBergen over the same period.

"MWI will provide [AmerisourceBergen] with a new customer base and an entrée into a higher-margin distribution business," said Diana Lee, a senior credit officer with Moody's Investors Service.

However, the deal will roughly double AmeriSource's debt load, to $4 billion. That prompted Fitch Ratings to put AmerisourceBergen on notice that its long-term credit rating could be downgraded if the company did significantly cut its debt load in within 18 months to two years of completing the MWI purchase.

MWI had net income of $73 million on $2.98 billion in revenue in the year ended Sept. 30. AmerisourceBergen, which employs about 800 in offices in Chesterbrook and Conshohocken, reported revenue in the same period of $119.6 billion. Its net income was $276 million.