Bergen Brunswig: B2B Wannabe

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.

So, to give the company new life, it developed Pharmabid.com,
a B2B platform that allows the auctioning of a myriad of medical supplies,
like rubber gloves and even vaccines and blood plasma.

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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