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Corless: PSS-McKesson merger about opportunity

by Mark Basch, Contributing Writer

In May, PSS World Medical Inc. launched an initiative it called Healthcare 2.0 to realign its businesses to serve the future needs of the health care industry.

Five months later, it decided the best way to meet those needs is to merge with a giant competitor in the medical supply distribution industry.

“This is about opportunity and bringing together two companies with strengths that will be a very positive force in the health care industry,” PSS President and CEO Gary Corless said in an interview Thursday after PSS agreed to a $2.1 billion buyout offer from McKesson Corp.

PSS’s initiative announced in May, in which it realigned its businesses into four segments, included plans to sell off two other divisions that serve the specialty dental and skilled nursing facility markets.

The company found a buyer for the dental business a month ago and as it discussed a possible sale of the nursing facility business to McKesson, talks escalated.

“The door was made available to us when the discussions opened up around their extended care business and through those discussions, we were able to expand the discussion to talk about the larger transaction,” McKesson Chairman and CEO John Hammergren said in a conference call with analysts.

Corless wouldn’t say if any other parties made a bid for the entire company, but he said the board of directors considered its fiduciary duty to maximize shareholder value.

“We choose this as the best path going forward,” he said.

McKesson is offering $29 in cash to buy every PSS share, a 34 percent premium to the stock’s closing price on Wednesday before the deal was announced.

McKesson is also assuming about $480 million in PSS debt to make the total value of the deal $2.1 billion.

San Francisco-based McKesson is a much larger company that distributes pharmaceutical products, medical supplies and health and beauty care supplies. It also has a health care technology solutions division.

The company is ranked 14th in the Fortune 500 list of the largest U.S. companies.

McKesson on Thursday reported revenue of $29.9 billion for the quarter ended Sept. 30. PSS reported $409 million in revenue in its last financial report for the quarter ended June 29.

Corless said many of the operational details after the merger have not been decided yet, but he will become chief operating officer of McKesson and continue to be based in Jacksonville.

Roles for other top PSS officials have not been determined but they expect to continue to work for the combined company.

“We’re all very excited to be a part of this,” said PSS Executive Vice President and Chief Financial Officer David Bronson.

During McKesson’s conference call, Hammergren praised PSS’s sales staff and said he hopes to keep all of the sales representatives from both companies after the merger.

“We believe strongly that sales force is one of the points of significant value in this transaction,” he said.

“Our sales staff has been known as one of the best in the industry,” Corless said.

There may be cuts in some other areas. McKesson said it hopes to achieve $100 million in annual costs savings by the fourth year after the transaction closes.

PSS currently employs about 780 people in Jacksonville and 4,000 in total across the country.

PSS, which is currently headquartered in the Southpoint area of Jacksonville, has been scouting locations for a new headquarters office, including possibly in Downtown Jacksonville. That search is now on hold until the merger is completed, and Corless could not say whether the merged company would be looking for a smaller space.

“Until we get together, I wouldn’t know how much office space to look at,” he said.

Until the merger is completed, PSS also will not be thinking about the post-merger operations, Corless said.

“We’re still two separate companies. Short term, it’s business as usual,” he said.

Hammergren said both companies have strong long-term relationships with customers, so he wants to be cautious about integrating the operations.

“We’re going to be very careful and very thoughtful about any changes we make that might disrupt those customer relationships,” he said.

mbasch@baileypub.com

356-2466

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