The Federal Trade Commission Friday filed a complaint to block Omnicare Inc.'s (OCR) hostile bid for rival PharMerica Corp. (PMC), alleging a merger of the two largest U.S. long-term care pharmacies would stifle competition and put consumers at risk. PharMerica shares dropped nearly 13 percent in extended session Friday, upon the news.
Omnicare in August had offered to acquire PharMerica for $716 million or $15 per share in cash, but PharMerica spurned the offer, after which Omnicare took the proposal directly to stockholders. Omnicare's extended offer to purchase all outstanding shares of PharMerica expired today.
In its complaint, the Federal Trade Commission, or FTC, said a combination of the two companies will enhance Omnicare's already strong bargaining leverage by increasing the number of skilled nursing facilities, or SNFs, that receive long-term care pharmacy services from the company.
The FTC alleges that a merger will monopolize Medicare Part D prescription drug plans, and enable Omnicare to raise drug prices for Medicare Part D consumers and others. It also said the combination would serve about 57 percent of all licensed SNF beds in the U.S., and that as per the Merger Guidelines used by the FTC and Department of Justice, a transaction that leads to that much market concentration would be presumed illegal.
The FTC vote to issue the complaint against Omnicare was 3-1, with Commissioner Thomas Rosch voting 'no'. The case will be heard before an administrative law judge at the FTC in June 2012.
"If Omnicare is allowed to purchase its biggest and only national competitor, it will diminish competition and raise health care costs - leaving taxpayers and patients to foot the bill," said Richard Feinstein, Director of the FTC's Bureau of Competition.
"The Bureau will continue to be vigilant in our efforts to prevent these sorts of anticompetitive deals."
Meanwhile, in response to the FTC complaint, Omnicare said it disagrees with the Commission's decision to seek to block the proposed transaction. The company also disputed FTC's claim for the need to protect insurance companies. It said the FTC has already examined the institutional pharmacy industry, noting there is scope for competition to thrive even after the merger.
Covington, Kentucky-based Omnicare operates about 204 long-term care pharmacies in 44 states. In 2010, Omnicare had revenues of about $6.1 billion.
PharMerica, headquartered in Louisville, Kentucky, operates nearly 97 long-term pharmacies in 43 states. In 2010, it had revenues of about $1.8 billion.
PMC closed Friday on the NYSE at $14.30, down $0.09 or 0.63%. Further, in after hours, the stock dropped $1.85 or 12.94%.
OCR closed at $33.05, down $0.05 or 0.15%, on a volume of 1.2 million shares on the NYSE, dropping $0.45 or 1.36% in after hours.
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