American Home Products Buys VLI Corp. of Irvine for $78 Million

VLI Corp., an Irvine-based personal products manufacturer, has accepted a reduced, $78-million acquisition offer from American Home Products that eliminates uncertainties caused by the loss of a key patent on its Today brand contraceptive sponges.

The company’s revised pact with New York-based American Home will provide VLI stockholders with $6.25 per share in cash for a total of $78 million.

American Home had originally agreed to acquire VLI for $7 per share, or $87.5 million. But the offer was conditioned on reinstatement of a patent covering design features of the Today sponge, VLI’s primary product.

VLI lost the patent in July because it failed to pay a $150 maintenance fee to the U.S. Patent Office. A petition to reinstate the patent was denied in September, and VLI has appealed the denial.

Although the company expects the agency to reinstate the patent, the matter may not be settled until after the March, 1988, expiration of American Home’s original acquisition offer.

“I’m confident we’ll win it back, but this is a chance to get out of (the uncertainty),” said Bruce Vorhauer, a former VLI chairman who is the company’s major stockholder, with 600,000 shares.

Vorhauer said the decision to accept the reduced offer also reflects last month’s stock market crash, which caused the value of both VLI and American Home stock to plummet.

Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley, said the revised deal makes sense for VLI shareholders.

McCamant noted, however, that the $6.25 acquisition price is considerably less than VLI’s original investors anticipated. The company went public in September, 1983, at $13 per share, and its stock soared to an all-time high of $26.75 per share within two months.

But when the Today sponge was briefly linked to toxic shock syndrome in December, 1983, VLI’s shares went into a tailspin. Although the stock price eventually stabilized, the company spent millions on advertising to overcome the negative publicity.

In recent years, Vorhauer said, the company focused on marketing the Today sponge as an over-the-counter contraceptive, while overlooking its potential applications as a vehicle for treatment of vaginal infections and sexually transmitted diseases.

Vorhauer said he resigned as chairman in August, 1986, because he didn’t agree with the company’s business strategy.

Analysts said American Home will be a better environment for continued development of VLI’s product line. Research involving possible treatments of infection and disease will be conducted through American Home’s Wyeth and Ayerst Laboratories divisions.

Over-the-counter sales of VLI’s sponge, a recently introduced line of Today condoms, and its pregnancy and ovulation test kits will be handled by American Home’s Whitehall division, which includes such medicine chest staples as Anacin, Dristan, Preparation H and Advil.

The Today condoms may position American Home as a major competitor in the growing prophylactic market, said Louis Webb Jr., a consumer products analyst with Advest Group in Hartford, Conn.

“Today is a good (brand) name, and American Home has a lot of power to expand in markets,” Webb said.

Robert Elliott, VLI’s current chairman, said American Home probably will shut down VLI’s California facilities at some point to consolidate the combined operations in the East.

Elliott, who said he will remain with VLI only through June, characterized the future of VLI’s 155 employees as uncertain.