Omnicare commences hostile takeover of rival Neighborcare.

What started as a routine but significant acquisition attempt involving two of the long term care industry's leading pharmaceutical product suppliers has turned into a hostile takeover bid.

In June, Omnicare Inc. launched an unsolicited public tender offer for all out standing shares of rival NeighborCare Inc. The tender offer, during which a company makes a proposal directly to shareholders to buy their stock, came after NeighborCare's board of directors unanimously rejected Omnicare's $1.5 billion all-cash buyout.

It was the second time NeighborCare's board turned down the $30 per share offer, according to NeighborCare Chairman and Chief Executive Officer John J. Arlotta. "To me, the situation is very straightforward--[NeighborCare] is just getting started." he sale "[Omnicare's] proposal is totally in adequate, based on the future potential of this company."

Omnicare President Joel F. Gemunder first approached Arlotta in late February about combining Omnicare, the No. 1 long term care pharmaceutical supplier, with No.3 NeighborCare. In March, Arlotta and the NeighborCare board voted against the proposal. Two months later, the board unanimously denied what was "essentially the same proposal," Arlotta said.

According to Gemunder Omnicare's $30 per share offer represented a 70 percent gain for NeighborCare shareholders over the company's stock price before merger efforts became public in May.

NeighborCare's stock has since risen above the $30 mark after news of the merger attempt broke, Arlotta said.

Still, "the combination of Omnicare and NeighborCare is too compelling to ignore, and our two companies are a strong strategic fit," Gemunder said in a letter to the NeighborCare board.

After the second rejection, Omnicare took its case directly to the shareholders. In a full-page ad in the June 15 Baltimore Sun, the day of NeighborCare's annual shareholders' meeting, Omnicare asked shareholders to "send a strong message to your board of directors that you--the real owners of the company - want to receive maximum value for your NeighborCare investment."

That day, NeighborCare's board unanimously voted to recommend that shareholders not sell their shares. Omnicare's offer is valid until July 30 unless extended.

If Omnicare acquires NeighborCare, it will be the Lexington, Ky.-based firm's fourth acquisition in two years. One of those deals includes a $460 million purchase of NCS Healthcare Inc. in January 2003. NeighborCare, then a part of Genesis Health Ventures, originally had NCS in its sights before Omnicare won a takeover battle.

Omnicare provides pharmaceutical services to long term care facilities in 47 states and the District of Columbia, totaling more than 1 million beds. The 6,900-employee company had annual sales of $3.5 billion in 2003, a 33 percent increase from 2002, according to NYSE.com.

NeighborCare, based in Baltimore, split off from Genesis Health Ventures in December 2003. The company caters to long term care facilities in 32 states and the District of Columbia, totaling approximately 246,000 beds. The 35,000-employee firm had annual sales of $2.7 billion in 2003, up 6.5 percent from 2002, according to WSJ.com.

Barron's Big Boys

The 2004 list of Barron's 500 largest companies in the United States and Canada includes 15 companies with ties to the tong term care Industry:

RANK   COMPANY

5      Omnicare
62     Medtronic
71     Cardinal Health
110    Triad Hospitals
161    Abbott Laboratories
173    McKesson
180    Johnson & Johnson
209    Unitedhealth Group
219    MetLife
299    E.I. Du Pont De Nemours
354    Universal Health Services
393    Amerisource Bergen
398    HCA
435    Merck
486    Tenet Healthcare

Source: Barron's Online