Cardinal's acquisition of Kinray: A smart move

WHAT IT MEANS AND WHY IT’S IMPORTANT — One of the Big Three in pharmaceutical wholesaling is about to get a lot bigger.

(THE NEWS: Cardinal Health to acquire pharmaceutical distributor Kinray. For the full story, click here)

Cardinal Health revealed Thursday that it had struck a landmark deal to buy Kinray, the nation’s biggest independently owned drug distributor. The $1.3 billion buyout marks the end of Kinray’s remarkable 36-year run as a privately owned growth juggernaut, and a bonanza for its owner and CEO, the colorful and socially connected philanthropist and billionaire Stewart Rahr.

Beginning in the 1970s, Rahr built the Whitestone, N.Y.-based company from a small regional wholesaler doing less than $1 million in sales to a drug distribution and service powerhouse serving more than 2,000 independent drug stores, largely thanks to an obsessive commitment to personalized service, responsiveness to customer needs, high-tech order and fulfillment muscle, and rapid order turnaround. Kinray ships prescription and over-the-counter medicines, health and beauty aids and home health products to stores across the United States, but its real strength lies in its strong customer base in the Northeast, where it generates most of its more than $4.5 billion in annual revenues.

For Cardinal, winning Kinray may prove to be one of the smartest acquisitions every parlayed by a major wholesaler intent on national distribution strength. The merger will boost its core customer base to more than 7,000 independently owned drug stores, vastly adding to its scale vis-a-vis its two primary wholesale rivals, McKesson and AmerisourceBergen. Equally important, the addition of Kinray’s service network propels the company ahead in its efforts to diversify its customer base to include a healthy mix of independents, Medicine Shoppe and Medicap Pharmacy franchisees, and drug chains.

What remains to be seen, of course, is how much of Kinray’s service-obsessed culture works its way through into its new, larger owner. Cardinal also prides itself on customer service and rapid order turnaround, but Kinray’s close ties to its core independent pharmacy owners in the Northeast may have been unrivalled in all of drug wholesaling. Cardinal would do well to incorporate that personalized, you-can-pick-up-the-phone-anytime approach that Rahr always championed with Kinray’s customers.

Granted, applying that kind of personalized culture to the much bigger scale of Cardinal’s business model always will be challenging, but Cardinal chairman and CEO George Barrett appears to put a high premium on Kinray’s customer service standards, saying his company will work “to continue that tradition.”

The pharmacy owners who rely on Kinray also can expect some benefits. Among them: “branded pharmaceutical programs, inventory and pharmacy management tools, and Cardinal Health's extensive generic drug program,” Barrett said.