Bergen Brunswig: B2B Wannabe
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Next year, expect many companies to tout that, yes, they are really business-to-business players and deserve nose-bleed valuations. It makes sense, after all.
The valuations of such B2B companies as Ariba (ARBA) and Commerce One (CMRC) have been extraordinary. Then, last week, there was the FreeMarkets (FMKT) IPO, which was up 232 to 280 on its first day of trading.
But investors need to be careful. No doubt, B2B is real -- and long lasting. But there will be many companies that are, in reality, B2B wannabes.
One that seems to fit the description is Bergen Brunswig (BBC). The company is a traditional pharmaceuticals distributor, the third largest in the US. Unfortunately, its stock performance has been dismal. It is now trading for $7-13/16, down from a 52-week high of $37-3/4.
Certainly, within the fragmented drug supply market a B2B infrastructure can provide for efficiencies. What's more, it can lead to more sales, as buyers have a centralized location to find products. Finally, manufacturers have much excess goods, which can be sold at a discount.
The site is definitely innovative. Yet, the stock price has barely budged. In fact, the stock is likely to tread water. So what's wrong?
First of all, Bergen is not a zippy start-up; rather, it is a large, mature business. In its fourth quarter, revenues were $4.5 billion. So adding a B2B site may produce some cost efficiencies and perhaps some incremental sales, but not be enough to affect the top or bottom lines or make the stock fly.
Second, there has been a management shake-up, and the CEO was sacked -- rarely a good sign. Not surprisingly, Bergen has a number of internal problems, largely due to an acquisition of a specialty drug company, in addition to problems with the company's long-term care unit.
So the company will need much more than a B2B site to get the stock price on the right track. Currently, Bergen is undergoing a restructuring, but this can take some time. And time is something you don't want to waste when investing in the B2B space.
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