Merger May Clear Way to Settle Dalkon Shield Cases
In a move that could settle millions of dollars in damage claims related to the Dalkon Shield contraceptive, beleaguered A.H. Robins Co. said Friday that it planned to merge with the Rorer Group Inc. in a deal they valued at $2.6 billion.
The agreement between the pharmaceutical companies would clear the way for thousands of women to be compensated for injuries that they say they suffered from using the intrauterine device. Reeling under claims of sterility, miscarriages, pelvic infections and other troubles blamed on the Dalkon Shield, Robins filed for bankruptcy court protection two years ago.
The merger proposal, signed by officials of both companies after two days of intensive negotiations, would create two trust funds valued at a total of $1.75 billion to pay off claimants.
“In proposing this merger agreement, Rorer is conscious of the social responsibility to resolve as soon as possible the Dalkon Shield claims,” said Robert E. Cawthorn, Rorer’s chairman and chief executive, in a statement.
He added that “by providing $1.75 billion, all legitimate claims can be processed and settled in the shortest possible time, while insulating Rorer from such claims.”
E. Claiborne Robins Jr., president of Robins, did not elaborate on the injury issue in the joint statement. Officials of the Richmond, Va.-based company could not be reached Friday.
The proposed merger must overcome various judicial and regulatory obstacles to take effect. Dalkon Shield claimants, who are a majority of Robins’ creditors, must also approve the deal, as well as company stockholders. Attorneys representing some former Dalkon Shield users said Friday that they are concerned that the trust funds might not be large enough.
While Rorer would inherit a substantial liability in assuming the Dalkon Shield claims, it would also be buying one of the nation’s oldest and most prominent pharmaceutical companies. Its products include Robitussin cough remedy and Chap Stick lip balm. Untouched by the Dalkon controversy, most of Robins’ product lines would be a prize catch for any of its competitors.
The company, which began as a drug store in the 1800s, has been controlled by the Robins family for more than a century. Rorer, of Fort Washington, Pa., is the maker of the antacid Maalox, in addition to other over-the-counter drugs and hospital products. The merged firm would be the sixth largest over-the-counter drug concern in the country.
Under the arrangement, Robins shareholders would receive preferred shares of Rorer. The shares, valued at $30, would be exchanged on a one-for-one basis. But if the value of Rorer stock goes up, Robins shareholders would receive a smaller amount of stock. Specifically, the agreement says that if the price of Rorer stock goes up to $48 a share, the company would provide Robins shareholders only .625 of a share of Rorer stock for each Robins share.
The New York Stock Exchange was closed Friday for the July 4 holiday. On Thursday, Rorer stock climbed $1.75 to just over $46.12. Robins stock rose $1.25 to $28.75--an event that did not go unnoticed by Dalkon Shield users.
Said Bradley Post, an attorney in Wichita, Kan., who represents Dalkon Shield claimants: “You ever hear of a stock going up in value while the company is in bankruptcy? Strange, isn’t it”?
Push Up Stock
Post said the main effect of the merger proposal has been to push up the Robins stock.
More than 320,000 women have responded to a court-ordered campaign to locate all Dalkon Shield claimants. But Post, who currently represents more than 35 former users of the contraceptive, estimated that as few as 40,000 to 50,000 women had “valid, significant claims” against Robins. Nonetheless, he maintained that the total of such claims could be as high as $5 billion, rendering the proposed $1.75 billion in damage funds insufficient.
Stanley K. Joynes III, a Richmond attorney, voiced a similar concern, particularly for future claimants, saying, “The people who come last won’t have any redress at all.”
Friday’s development is the latest in a protracted controversy that dates back to the 1970s, when Robins sold more than 3 million Dalkon shields in the United States and many other countries before withdrawing the product under a torrent of lawsuits. Robins paid more than $378 million to settle more than 9,200 lawsuits before filing for protection under Chapter 11 in 1985.
Stormy Time
Since then, the Virginia company has had a stormy time in court. It was found in contempt last year on two occasions for paying $21 million in debts incurred before it entered bankruptcy and also for paying $9 million to executives without court approval.
As Robins’ legal troubles have persisted, it has increasingly attracted companies seeking to take it over, despite its oft-stated preference to stay independent.
In February, American Home Products proposed a trust-fund for the contraceptive users as part of its own attempt to take control of Robins. But the Robins family, which reportedly controls more than 40% of the stock, spurned the offer. Pfizer Inc. and Merrell Dow Pharmaceuticals Inc. got the same reaction in May when they sought to buy units of Robins.
Rorer was apparently rebuffed in April, but Robins officials have come under intensifying pressure to resolve the legal and financial troubles. Analysts supported the new proposal.
“Everybody else has come to the conclusion that outside funding was the quickest solution to everybody’s problems,” said Michael L. Mead, an analyst with the Scott & Stingfellow brokerage house in Richmond. “The people who were not interested were the board of directors of A.H. Robbins.”
“It’s a good fit,” said Craig B. Dickson, an analyst with Interstate Securities, a Charlotte, N.C., brokerage firm.
By combining the companies’ product lines, Dickson said, “the Rorer salesman is going to make the same number of calls and write twice the orders.”
