updated 8/7/2006 8:43:29 AM ET 2006-08-07T12:43:29

AmerisourceBergen Corp. and Kindred Healthcare Inc. early Monday said they signed a nonbinding letter of intent to combine their institutional pharmacy businesses into a single, publicly traded company. The companies said the combined company will be the second-largest institutional pharmacy, with annual revenue of $1.9 billion and earnings before interest and taxes of $75 million. The companies expect about $30 million in cost savings from the deal.

Louisville, Ky.-based Kindred is contributing its Kindred Pharmacy Services segment and Chesterbrook, Pa.-based AmerisourceBergen is contributing its PharMerica Long-Term Care business. The segments provide drugs to hospitals, nursing homes and other health-care facilities. Amerisource's Pharmerica segment also has a workers' compensation business that will not be included in the deal, Amerisource said.

The companies expect to sign a definitive agreement around Sept. 30 and hope to close the deal in the first quarter of 2007, subject to regulatory approval.

"This transaction is a huge win for patients, customers, associates, suppliers and shareholders," said Amerisource Chief Executive R. David Yost. "It will build on the best of both organizations as the new company becomes a national force in a growing market."

The two businesses combined into the new offering will each borrow $150 million and give the money to their respective parent companies before the transaction closes. The companies said the transaction is tax-free. Shareholders from each company will own 50 percent of the shares of the new company.

The Amerisource segment as of June 30 served 234,600 patient beds, while Kindred served 95,300. Amerisource's Pharmerica logged $609.5 million during the first six months of 2006, and Kindred booked $317.1 million. While Amerisource's institutional pharmacy business is the bigger of the two segments the companies are rolling into the new company, Kindred reported $19.5 million in earnings before interest and taxes for the first six months of 2006, while Pharmerica earned $18 million.

Deutsche Bank Securities is advising AmerisourceBergen, and Lehman Brothers is advising Kindred.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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