McQueary Bros. sells for $190M

“I thought I was going to be here the rest of my life,” said McQueary, the company president, who shared stories of how his co-founder grandfather used to make handshake deals “over coffee at a diner downtown.”

The pharmaceutical industry presents a different environment today, evidenced by the $190 million definitive agreement McQueary and family signed April 8 to sell Springfield’s McQueary Brothers Drug Co. to San Francisco-based and publicly traded McKesson Corp. (NYSE: MCK). The deal, subject to Federal Trade Commission review, should close in the second quarter, McQueary said.

The future is cloudy for McQueary Brothers’ 111 employees and its 66,000-square-foot warehouse at 4727 E. Kearney St. Both McQueary and McKesson spokesman James Larkin said they didn’t know if McKesson would close the facility, though McQueary said the agreement stipulates that local management would stay in place for a year.

McKesson already operates its Extended Care Solution Group in Springfield. That facility, 1550 E. Republic Road, handles software for home health agencies and employs about 200.

Profit plan

The McQueary family is sharing $21 million of the sale proceeds with employees. That averages to about $207,000 per employee, but the money will be divided based primarily on seniority.

Four employees started with the company in the 1970s, and 20 percent of the employees have at least 15 years of service, McQueary said.

“They’re an extension of the McQueary family, and we felt like we had to do the right thing by them,” McQueary said. “These people, some of them I’ve grown up with.”

If McKesson chooses to close the Springfield operation, it could serve McQueary Brothers’ 400 customers – mostly rural, independent pharmacies – from McKesson drug-distribution centers in St. Peters; Cape Girardeau; Memphis, Tenn.; and Oklahoma City. McQueary Brothers distributes everything from prescription drugs to toothbrushes, McQueary said. Local clients include Grove Pharmacy and Dan’s Discount Drug Mart.

The McQueary family began seeking a buyer about eight months ago and contacted McKesson in December. Consolidation in distribution strategies among drug manufacturers led to the decision, McQueary said.

Tighter control and cost savings have contributed to drugmakers, such as Genentech, Amgen and Pfizer, cutting the number of wholesale distribution companies with which they contract. The McQueary family saw that as a trend that could eventually suffocate their company.

“If you don’t have products, you don’t have much of a business,” McQueary said. “If everything was competitive in nature, and we could all have access to the same products at roughly the same price, we could compete on service, but once those things are taken away from us, the ability to compete is gone.”

Big-time buyer

McKesson ranked 18th on the 2007 Fortune 500 with $88 billion in 2006 revenues and has national buying power that should help it compete as drugmakers consolidate distribution channels, McQueary said. The deal broadens the Midwest distribution footprint of McKesson – Wal-Mart’s primary prescription drug supplier. McKesson, which employs more than 30,000 companywide, distributes one-third of the medicines used in North America, according to www.mckesson.com.

“McQueary Brothers’ customers will gain the best of both worlds – the highly personalized service they’ve come to expect from McQueary Brothers coupled with the expanded portfolio of products and services that McKesson provides,” wrote Larkin in an e-mail response, alluding to products such as McKesson’s pharmacy-management and automation systems.

McKesson shares closed April 9 at $53.91, compared to a 52-week range of $51.08 to $68.43.