GEHE AG

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GEHE AG

Neckartalstrasse 155
D-70376 Stuttgart
Germany
(49) (711) 5001-00
Fax: (49) (711) 5001-500
Web site: http://www.gehe.de

Public Subsidiary of Franz Haniel & Cie. GmbH (50.1%)
Incorporated: 1835 as Gehe & Companie
Employees: 23,755
Sales: DM 25.03 billion (1997)
Stock Exchanges: Frankfurt/Main
Ticker Symbol: GEHG.F
SICs: 5047 Medical, Dental, & Hospital Equipment & Supplies; 5122 Drugs, Drug Proprietaries, & Druggists’ Sundries; 5912 Drug Stores & Proprietary Stores; 5961 Catalog & Mail-Order Houses; 7352 Medical Equipment Rental & Leasing

GEHE AG is the largest drug wholesaler in Europe. Through main wholesale subsidiaries in Germany, France, and the United Kingdom, GEHE generated 85 percent of its DM 25 billion sales in eight European countries in 1997. In Germany where GEHE is headquartered, the company held the second largest market share in drug wholesales of about 19 percent in 1997. Eighty percent of the group’s turnover was generated outside Germany. GEHE’s OCP Group is the French market leader, with a 40 percent share. The OCP Group is also active in Belgium, Italy, and Portugal. In the United Kingdom, GEHE is represented through its AAH Group division, leading British drug wholesalers with a 37 percent market share. Through the Lloyd’s Pharmacy subsidiary, AAH also accounts for over ten percent of pharmacy retail sales in Great Britain and owns 1,290 pharmacies. The GEHE Healthcare Services Division provides supplies and services for rehabilitation, elderly care, and other home healthcare needs through the Pro Reha group in Germany and through Orkyn’ in France. GEHE’s special mail-order company—Kaiser + Kraft GmbH (K + K)—supplies over one million businesses worldwide with more than 20,000 products for offices, warehouses, and transportation, ranging from designer furniture to forklifts, through catalogues, CD-ROMs and the Internet. GEHE is majority-owned (50.1%) by the German trade and services group Haniel & Cie. GmbH.

Gehe’s Founder Pioneers Drug Wholesaling: 1835-1903

On May 1, 1835, 25-year-old merchant Franz Ludwig Gehe founded Gehe & Co. OHG, the first German drug wholesale business, in Dresden. After working as an assistant servant at a wholesale business for six years, he stated a clear vision about his new enterprise: “... to satisfy completely the requirements of the pharmacy in all its dealings.” At that time, pharmacy-made medicines were a luxury only rich people could afford. In its first year, the Gehe company employed three people full-time. Ten years later, Franz Ludwig Gehe moved his enterprise to Dresden’s Koenigstrasse, where he opened a drug wholesale house. Gehe & Co. sold unprocessed raw materials for drug manufacturing such as minerals and substances from plants and animals. Right from the beginning, Franz Ludwig Gehe worked on developing a far-reaching trading network through offices in two European “trade capitals,” Hamburg and London, and served customers all over the world. He traveled to the United States in 1876 and visited the world exhibition in Philadelphia, one of America’s most important pharmaceutical manufacturing centers at that time. Gehe’s wholesale business was based on traveling salespeople using company-owned coaches and delivery carried out by Dresden-based carriers. Deliveries to remote places were transported by rail or boat to GEHE subsidiaries or to railroad stations where customers picked them up.

When Gehe’s nephew, pharmacist and chemist Dr. Rudolph August Luboldt, joined the company in 1859, GEHE’s workforce was up to 29. He engaged in adding manufacturing of medicines to the wholesale business. In 1865, the first production facility for pre-produced drugs and drug finishing was built in Dresden’s Leipziger Strasse and started operation one year later as Gehe & Co., Drogen-und Appreturanstalt. The new branch enabled GEHE to deliver raw materials of higher quality, purified and tested at the new facility. The property was also an excellent basis for transportation, including direct rail and boat connections. In the second half of the 19th century, more and more finished medicines were brought to market by newly founded pharmaceutical manufacturers. On the other hand, international delivery by mail became more and more accepted after the Bern Convention of 1875 simplified international mail delivery in 21 mainly European countries. Consequently, the frequency of orders per customer went up steadily. In addition, demand for pharmaceuticals increased after a law became effective in Germany in 1883, making public health insurance obligatory for industrial workers, with benefits such as free medication. Price and product information of the GEHE company were provided to its growing international pharmacist clientele in five languages, and GEHE employees were sent out to explore new trade possibilities literally everywhere in the world, from northern Europe to Africa, from North America to the Orient.

In 1882, company founder Franz Ludwig Gehe died. According to his will, a foundation named after him was opened in 1885 in Dresden, offering various educational opportunities for merchants, civil servants, tradespeople, and workers. Gehe’s death made Rudolph August Luboldt the sole proprietor of the GEHE enterprise, which by then already had 80 employees—12 of them certified pharmacists and chemists—and 150 factory workers on its payroll. When Rudolph August Luboldt died in 1894, his son, chemist Dr. Walter Luboldt, took over the GEHE business as sole proprietor and managed the firm until 1903. GEHE also published, in 1894, the first specialty catalogue for industrially produced drugs. The so-called “Verzeichnis neuerer Heilmittel” consisted of 14 pages containing information on about 400 drugs, including their place of origin, consistency, and effects.

Expansion After Going Public in 1903

In 1903 GEHE was transformed into a public stock company with the new name Gehe & Co. AG, starting out with a capital of DM 2 million, a work force of 400 people, and Dr. Walter Luboldt as its first CEO. In 1908 GEHE extended production capacity by taking over the Chemische Fabrik Schoenprissen in Aussig, a Czech chemicals factory, which was merged into Gehe & Co., Aussig, in 1924. In 1909 GEHE’s first drug wholesale house in Koenigstrasse was closed after the construction of a new house at the Leipziger Strasse location. In the 1920s, GEHE expanded its wholesale business in Stuttgart by purchasing two local drug wholesalers, and founded a publishing branch in Dresden for the “GEHE Codex.” In the 1930s, GEHE set up new subsidiaries in Germany, Spain, and Poland through new acquisitions. In 1935 GEHE employed 560 people, among them 39 sales representatives in Germany and 95 abroad. By 1943 GEHE had established five sales offices in Germany, one in Spain, and two in Poland.

In 1910 GEHE’s first “Codex” was published, a 390-page reference book for pharmacists and doctors including information on all industrially manufactured drugs and their composition, usage, and dosage, as well as information about cosmetics and important technical products. The compendium was aimed to give a comprehensive and objective overview of the fast-growing market of pre-manufactured pharmaceuticals. Only four years later, the second edition came out with almost double the pages. In the fourth edition of 1926 the number of pages had almost doubled again; the book included information on drug manufacturers for the first time. In 1929 German explanations of pharmaceutical terms in foreign languages were added. After several customers complained about the ever growing size of the book, GEHE decided to restrict the “Codex” to all drugs for which authentic data were available from manufacturers. However, the “Codex” was extended again in 1935, including more foreign preparations and new homeopathic medicines. In addition, a separate publication, the “Rote Liste” (red list) with listings of prices for German pharmaceuticals, was launched in the same year. By 1937 information on chemicals for cleaning, disinfecting, and pesticides was added.

An Unexpected New Beginning in 1948

After World War II, GEHE lost its headquarters in Dresden, which was located in the Russian sector. In 1947 Gehe’s main office in Dresden was renamed and transformed into a publicly owned entity. Three years later, the former Gehe & Co. AG was merged with two Dresden-based pharmaceutical companies into Volkseigener Betrieb Arzneimittelwerk Dresden, owned by the East German government. The West German remains of GEHE started from scratch with 17 people—including CEO Dr. Max W. Ecker—in the West German sales offices in Sulzbach-Rosenberg and Kassel, and C.H. Burk GmbH in Stuttgart which GEHE had owned since 1921. In 1948, GEHE’s headquarters were moved from Dresden to Munich. At the end of that year, sales for GEHE’s first balance sheet after the war and after the introduction of a new currency in the West German sectors were DM 1.9 million. By the end of the following decade, they tripled, reaching DM 6.6 million in 1958. In that year, GEHE’s West German branches were reorganized. New branches were opened in Bavaria, the Sulzbach-Rosenberg office was closed, and the C.H. Burk GmbH in Stuttgart was integrated as a branch.

Company Perspectives:

As the market leader in Europe, we wish to understand the public health systems and the differing, oftentimes complex, conditions in each of the principal European countries. It is our desire to actively influence the changes in order to share the experience of our companies with our customers. Our philosophy of quickly adapting to ever-changing market conditions helps us to position ourselves as leaders in the industries and countries where we have established a presence.

GEHE entered the 1960s with a significant boost in sales. The figure of DM 36.7 million in that year was almost five times higher than a year before. Total sales rose at an increasing rate during the decade, between 9 and 13 percent until 1964, mainly caused by generally rising demand. In the second half of the 1960s, GEHE’s sales increased at a rate of 25 percent and up annually, mainly due to a row of mergers and acquisitions, including the takeover of three German drug wholesalers in 1966 and 1967. In the record year of 1968, sales grew by 28 percent compared with 1967, reaching DM 147 million. In 1969, GEHE acquired the German drug wholesaler Heitzer & Co. KG in Hamburg, strengthening the company’s position in northern Germany. In the same year, GEHE ceased publication of the “Codex” which was one year later replaced by the “Gelbe Liste” (yellow list), a pharmaceuticals index published by Drotax in Frankfurt/Main.

New Partners, Technologies, and Markets: The 1970s and 1980s

GEHE’s future was affected significantly when Franz Haniel & Cie. GmbH, based in Duisburg, Germany, became a majority shareholder in 1973. With Haniel as a new partner, the GEHE group entered a new period of expansion. In 1976, four German drug wholesale subsidiaries of the Haniel group were merged with GEHE. In 1979, Dr. Dieter Schadt became GEHE’s new CEO. To significantly improve GEHE’s domestic market position, existing branches were reorganized in 1981, including two acquisitions and two closures. After moving headquarters from Munich to Stuttgart and changing its name to GEHE AG in 1981, GEHE acquired Ruwa GmbH, one of its main competitors, in 1982.

Another crucial step on GEHE’s path to become a market leader was heavy investment in state-of-the-art technology. Beginning in the 1970s, the way the pharmaceutical wholesale business functioned changed completely, driven by emerging electronic data processing and computer technology. Telephone orders from pharmacists were entered into computer terminals and processed electronically in GEHE’s branches. Later on, orders were directly transmitted through electronic data transfer from the pharmacies to GEHE’s warehouses. A second wave of rationalization affected the way orders were handled, and manual commissioning was gradually replaced by machinery, significantly lowering the order error rate. Another result was that GEHE’s workforce dropped by 25 percent in only five years, from 1,608 in 1976 to 1,217 in 1981. In 1985, the firm’s 150th anniversary year, GEHE was the first German drug wholesaler to introduce fully automated commissioning in its newly built Darmstadt/Weiterstadt branch. GEHE also pioneered robot utilization in its warehouses in 1988, where approximately 45,000 orders had to be filled daily, 80 percent within a window of about four hours, selected from an inventory of some 75,000 different products. Automated commissioning was used to fill orders for approximately 2,000 articles most in demand, accounting for about 35 percent of GEHE’s sales. The automates, controlled by a central computer, were able to fill about 1,500 orders totaling 15,000 articles per hour. In comparison, commissioning robots were slower, but more flexible. Equipped with an optical recognition system able to recognize different products, the robots were able to grab an article out of a shelf in four seconds, assemble eight orders at a time, and fill about 500 orders per hour.

In the second half of the 1980s, GEHE diversified into the mail-order business by purchasing the German Kaiser + Kraft Group, which supplied corporate clients with office, warehouse, and transportation equipment. GEHE’s international trading network was extended, covering 14 European countries and the United States. In 1987 and 1988, the takeover of the German GAERNER GmbH & Co. KG and Milwaukee-based C & H Distributors, Inc., strengthened GEHE’s new mail-order division. In 1989, GEHE again added pharmaceutical manufacturing to its portfolio when the group acquired a 26 percent share in Azuchemie GmbH, Gerlingen, Germany’s second largest generic drug maker. In 1989, sales of the GEHE group reached almost DM 3.3 billion, and the number of employees was up to 4,170.

Becoming a European Market Leader in the 1990s

With the reunification of Germany, GEHE launched its largest investment plan to date in 1990, aimed at the extension of the drug wholesale activities to eastern Germany. Immediately after the fall of the Berlin Wall, GEHE started contacting pharmacies in the former GDR and started supplying them from branches in western Germany as well as provisional warehouses in eastern Germany. In 1991, six newly established branches were opened in the east German states. In 1991 and 1992, the east German Jenapharm GmbH, Jena, was acquired and a new production facility—mainly for hormone preparations—was opened in Weimar. After a record growth of 13 percent in drug wholesales in 1990 mainly caused by the growing domestic market, the same market collapsed in 1993, due to new regulations introduced by the German government in order to restrict the explosion of public healthcare costs, which immediately resulted in drug sales dropping by 15 to 20 percent. In the same year, GEHE went through a restructuring program. GEHE AG was organized as a holding company. The new pharmaceutical wholesale division, GEHE Pharma Handel GmbH, managed 17 branches in Germany. Pharmaceutical production and mailorder became separately managed business divisions. In 1993, Dieter Schadt resigned as GEHE’s CEO and became chairman of its supervisory board.

After reorganizing business in Germany, GEHE entered a period of unprecedented international expansion. It began with the establishment of new drug wholesale enterprises in Poland, Czechoslovakia, and Russia between 1991 and 1993. With taking over the French Office Commerciale Pharmaceutique S.A. (OCP), GEHE became Europe’s number one drug wholesaler. Two other deals secured GEHE’s top position in the wholesale business: the “hostile takeover” of AAH Plc in 1995, which controlled 30 percent of the British and 40 percent of the Irish wholesale markets and owned 250 retail pharmacies. This transaction was closely followed by the purchase of Lloyds Chemists Plc in 1997 after a year-long bidding battle with British rival Unichem Pic. Thus, GEHE also entered the business it had served devotedly since the company’s founding: the pharmaceutical retail business of which it controlled some 1,300 stores in the United Kingdom in the late 1990s.

While entering the drug retail market was considered a strategic step towards concentration on GEHE’s core business after excessive wholesale expansion, other ventures were given up. Initiated in 1996, almost all pharma production subsidiaries were sold for DM 1.2 billion. GEHE’s subsidiaries in Poland and Russia had been sold in 1996. In order to further concentrate on its core business—trading pharmaceuticals—GEHE was planning to spin off its mail-order division Kaiser + Kraft to its shareholders in September 1999.

However, as a result of massive international expansion in the 1990s, GEHE’s workforce exploded almost fivefold, from 5,032 in 1990 to 23,755 in 1997. Within the same period of time, sales jumped from DM 3.78 billion to DM 25 billion, while net income rose from DM 58.6 million to 285.1 million—a nearly 500 percent increase. For 1998, GEHE’s new CEO, Dr. Fritz Oesterle, who replaced Dieter Kaemmerer at the beginning of 1999, reported that he expected the GEHE group’s net profit (before taxes) to reach DM 500 million for the first time in its history.

Principal Subsidiaries

GEHE Pharma Handel GmbH; Office Commercial Pharmaceutique-OCP S.A. (France; 97.05%); AAH Plc (U.K.); Lloyds Retail Chemists Ltd. (U.K.); AAH Retail Pharmacy Ltd. (U.K.); Pro Reha Handelsgesellschaft fuer Krankenpflegeartikel und Rehabilitationshilfen mbH & Co. KG; Pharma Dom S.A. (France; 99.44%); Kaiser + Kraft GmbH; Gaerner GmbH & Co. KG; Topdeq International GmbH; C & H Distributors Inc.