American Home Offers Fund for Dalkon Claims : Proposal Comes With Surprise Bid to Take Over A. H. Robins and Resolve Bankruptcy Proceedings
A trust fund to aid women injured by A. H. Robins Co.’s Dalkon Shield birth control device was proposed by one of the nation’s leading drug companies as part of a bid Wednesday to buy Robins, which is in bankruptcy proceedings as a result of law suits over the intrauterine shield.
American Home Products, maker of Dristan, Denorex shampoo and Black Flag insecticide, would not disclose the size of the proposed trust fund. But the company indicated that “the fund would assume responsibility for the resolution of all Dalkon Shield and related claims.”
“We believe our proposal offers a uniquely attractive solution to a very complex situation,” said John R. Stafford, chairman and chief executive of American Home Products. “The proposed acquisition is consistent with our strategy to expand American Home Product’s position in the pharmaceutical and health care fields.”
Attorney Stanley K. Joynes III, whose Richmond, Va., law firm represents potential Dalkon Shield claimants, called the offer “potentially a very, very favorable development. I would think that they (the claimants) are in a much better position with this (offer) on the table,” Joynes said.
In trading Wednesday on the New York Stock Exchange, Robins’ stock closed at $19.25, up $6.50. American Home was down by 12.5 cents, closing at $82.625.
Surprise Development
American Home’s proposal came as a surprise development in Robins’ complex and bitter bankruptcy proceedings, which have spanned nearly a year so far and have cost more than $12 million in legal expenses.
The offer, if it receives court approval and is accepted by Robins, would be likely to improve claimants’ prospects of recovery, other legal experts said, because the trust fund money would be used exclusively to pay women with valid injury claims. Ordinarily, such claimants would not receive compensation until the claims of Robins’ secured creditors are satisfied.
Robins was scheduled to submit a financial reorganization plan today in U.S. District Court in Richmond. But, in the wake of the surprise offer, U.S. District Judge Robert Merhige granted an extension while Robins studies American Home’s proposal.
Robins sought protection under Chapter 11 of the U.S. Bankruptcy Code in August, 1985, after thousands of suits were filed by women claiming injury from the Dalkon Shield. The IUD was taken off the U.S. market in 1974 at the recommendation of the Food and Drug Administration. But the FDA never barred the product, and Robins has never acknowledged liability in the case.
But lawsuits contend that women who used the Dalkon Shield suffered pelvic infections, spontaneous abortions and sterility because of bacteria that traveled into the uterus by way of a hollow string attached to the device.
Robins, which began as a drugstore in 1866 and expanded in the last century into a global pharmaceutical firm marketing such well-known products as Robitussin cough remedies and Chap Stick lip balm, could face dissolution if valid Dalkon Shield claims exceed the value of the company. Analysts estimate Robins to be worth between $1 billion and $2 billion.
Before filing for Chapter 11 protection, Robins paid more than $378 million to settle 9,230 suits filed by women claiming injury from the shield. An additional 5,000 claims were pending at the time.
A court-ordered campaign last year to solicit additional claims from women who suspected that they were injured attracted more than 320,000 responses by the April 30, 1986, deadline, although not all the claims will be accepted as valid. Attorney Joynes’ firm will represent women whose claims are accepted.
Despite the potentially massive financial liability the outstanding claims pose, some analysts believe that American Home Products may be able to acquire Robins at a fire-sale price precisely because of its legal problems.
“American Home may be getting the bargain of the year,” said David Saks, an analyst for the Los Angeles investment firm of Morgan, Olmstead, Kennedy & Gardner. “There is excellent synergy between the two companies. Outside of the Dalkon Shield, Robins has got a very solid business.”
Robert Benezra, a pharmaceutical analyst in Boston for the financial house of Alex. Brown & Sons, said, “It’s one of those unique circumstances where everybody gets their just reward, . . . claimants, . . . shareholders and management. American Home has more than $1 billion cash. And you just can’t sit on that kind of money at today’s interest rates of 6%.”
American Home Products, which had $4.9 billion in sales in 1986, is a diversified corporation with holdings in the health care and home products industries.
Several legal experts questioned whether American Home would come away with a bargain in trying to acquire Robins amid its Chapter 11 proceedings.
“It is unlikely that a third party (American Home) can expect to get a bargain,” said Michael Andrew, a bankruptcy law expert at the University of Colorado. In Chapter 11 proceedings, with creditors, plaintiffs and stockholders to be satisfied, Andrew said, “there are simply many more people on the other side of the table that want their interests protected” than in a normal purchase and sale outside bankruptcy court.
TOP PHARMACEUTICAL FIRMS
Annual sales Company in billions 1. Johnson & Johnson $6.92 2. Baxter Travenol 4.95 3. American Home Products 4.89 4. Bristol-Myers 4.74 5. Pfizer 4.37 6. Merck 3.94 7. Abbott Labs 3.70 8. SmithKline Beckman 3.60 9. Eli Lilly 3.57 10. Warner-Lambert 3.06 11. Schering-Plough 2.29 12. Upjohn 2.22 13. Sterling Drug 1.94 14. Squibb 1.87 15. Syntex 0.98 16. Erbamont 0.88 17. A.H. Robins 0.77 18. Rorer Group 0.68 19. Marion Labs 0.44 20. Shaklee 0.40
Source: Chemical Week
