Prudential-Bache Proposes Dalkon Fund : Robins Seen Opposing $2-Billion Plan That Would Dilute Stock

Prudential-Bache Securities has made an unsolicited proposal to raise nearly $2 billion for a trust fund to handle Dalkon Shield claims against A. H. Robins Co. and enable the pharmaceutical company to emerge from bankruptcy under control of its present management, sources say.

The $2 billion in cash would be raised primarily by borrowing and the issuance of new securities, sources said Friday. The trust fund would be used to compensate women who have been injured by the intrauterine contraceptive device.

The Prudential-Bache proposal would put about $250 million more cash into the trust fund than was offered in unsuccessful buyout bids by American Home Products Corp. and Rorer Group Inc. Prudential-Bache declined to comment on the matter Friday.

Prudential-Bache put the proposal before Washington lawyer Murray Drabkin, counsel to the official Dalkon Shield Claimants Committee, in March, and also described it to Ralph R. Mabey, the court-appointed examiner in the 20-month-old bankruptcy proceeding, one source said.

This source said that Drabkin “liked the plan” but cautioned that for the time being, at least, it cannot be officially considered in the bankruptcy case. Drabkin could not be reached.

The source said he understood that Mabey tended to regard the Prudential-Bache financing proposal “as speculative.”

Robins is expected to strongly oppose any effort to implement the Prudential-Bache proposal, partly because it involves an initial substantial dilution of the company’s common stock. The Robins family owns about 41% of the stock.

Last week, Robins filed a reorganization plan that proposed a $1.75-billion trust to administer and settle Dalkon Shield claims but that held the company’s initial cash payment into a trust fund to $75 million. The balance would come from a letter of credit.

Friday was the deadline for Robins to file a proposed disclosure statement, which is intended to explain the Chapter 11 plan in plain language, so that individual creditors--including Dalkon Shield claimants--may cast informed votes on the proposal. However, U.S. District Judge Robert R. Merhige Jr. granted a company request for a one-week extension.

Gregory McCrane of Greenwich, Conn., an independent financial adviser and former bank executive, and former Sen. Vance Hartke (D-Ind.), who works with him, conceived the Prudential-Bache proposal, the sources said.

In addition to funding a trust to benefit the Dalkon Shield claimants, the proposal provides for paying other creditors “100 cents on the dollar,” the sources said.

Prudential-Bache, a securities firm, would raise the $2 billion and earn substantial fees from:

- Robins’ current cash balance, which was said to be about $200 million. (The company’s net earnings were $81.8 million in 1986.)

- Tax carrybacks and possible tax carryforwards available to Robins based on the cash contribution.

- New bank borrowings.

- Issuance of subordinated notes.

- Borrowings against a separate trust fund that would receive royalties for 10 years on Robins’ sales--3% at first, then 5% and finally 6.7%.

- A new issue of stock that could dilute the current stockholders’ equity by as much as 70%. However, the sources said present stockholders would be issued new convertible preferred shares that ultimately could regain or even exceed the amount lost by dilution.