Dalkon Shield Trust Increased : Judge OKs Merger for A. H. Robins Co.

A. H. Robins Co. came another step closer to emerging from bankruptcy Wednesday when a federal judge approved the troubled drug maker’s merger with American Home Products Corp.

The approval was given only after last-minute negotiating in which the two companies--at the judge’s suggestion--agreed to boost initial funding of the Dalkon Shield trust to $100 million from $10 million.

Robins filed for Chapter 11 bankruptcy protection in 1985 due to massive lawsuits filed by women injured by the company’s Dalkon Shield contraceptive device. A key part of Robin’s proposed reorganization plan, which sets out how it will pay injured women and creditors, includes the company’s purchase by American Home Products.

The Shield, an intrauterine contraceptive, has been linked with deaths, sterility and serious internal injuries in women.

Robins’ reorganization plan must now be put to a vote by shareholders and creditors, including Shield claimants. Lawyers predict that the vote could take place as soon as April or May, but that they do not believe the trust will begin distributing funds until next year.

On Wednesday, Robins’ stock closed unchanged at $26 on the New York Stock Exchange.

U.S. District Judge Robert Merhige had previously ruled that Robins must provide more than $2 billion to pay Shield victims. Under Robins’ reorganization plan, American Home will provide $2.38 billion in cash for the trust as soon as the takeover is completed.

Concerned About Provision

American Home will also give Robins’ shareholders stock worth $700 million and provide funds to pay Robins’ back taxes and the company’s other creditors, as well as liabilities that lawyers estimate at $100 million.

Merhige told the two companies they could sign their merger agreement Wednesday. However, approval was not given until the two companies completed last minute negotiating ordered by the judge.

Merhige said he could not tolerate any further delays of payments to women injured by the Shield.

The judge said was concerned about a provision that would allow American Home to back out if the expected appeals in Robins’ bankruptcy case takes longer than 12 months from the time the reorganization plan is confirmed by the court.

He suggested that American Home agree to put up about $100 million for the Shield trust at the time the plan is confirmed.

If the plan was thrown out on appeal, Robins could reimburse American Home, the judge suggested.

After three hours of negotiating, the companies agreed to amend their merger agreement. The amendment provides that the initial payment to the fund be increased to $100 million from $10 million.

Richmond, Va.-based Robins makes such products as Robitussin cough syrup, Dimetapp cold medicine and Chap Stick lip balm.

Earlier this month, it reported a fourth-quarter loss of $1.69 billion due to funds set aside to pay Shield injury claims and costs related to its reorganization plan.

In January, it agreed to be taken over by American Home, one of three pharmaceutical companies bidding for Robins. Other suitors were Rorer Group Inc. and France’s Sanofi SA.

American Home is a New York-based health-care and consumer products company. Its products include Anacin and Dristan decongestant.