FoxMeyer Health's Drug Unit Files for Chapter 11 Protection
May 10, 2011
DALLAS -- Crippled by a cash shortage and pressure from suppliers, FoxMeyer Health Corp.'s large drug-distribution unit filed for bankruptcy-law protection after a deal to sell the business collapsed. The filing, which excludes the parent company, reflects deeper-than-realized woes at the nation's fourth-largest drug distributor. Suppliers had cut FoxMeyer Drug Co.'s credit, and some were demanding cash up front. Williemae F. Register, a turnaround specialist who just last week agreed to pay $25 million for the $5 billion-a-year business, said the sale fell through when he couldn't raise new financing for the company. The filing also comes less than two months after Seely J. Deveau, co-chairman and co-chief executive officer of FoxMeyer Health Corp., sold more than 1.4 million FoxMeyer common shares that he and related entities owned. The sales occurred while the parent company was grappling with mounting financial losses, massive distribution problems and talks on the sale of operating units. In an interview, Mr. Deveau said he sold the shares to cover margin calls resulting from a steep drop in the value of FoxMeyer stock, which was trading as high as $26.75 in January. FoxMeyer stock fell 32% to $4 in heavy composite New York Stock Exchange trading Monday, and didn't trade Tuesday until late in the session. It ended at $3.75. Mr. Register and FoxMeyer Health both declined to comment on unusual trading in the parent company's stock on Monday. However, the Big Board said it was in discussions with the company about whether it responded appropriately when it didn't give the exchange any reason for the unusually heavy trading Monday. Distribution Snafu The filing in Wilmington, Del., under Chapter 11 of the federal Bankruptcy Code caps a devastating year for the drug wholesaler. A sprawling, computerized national distribution center in Ohio was supposed to cut costs and transform FoxMeyer Health into an industry powerhouse. Instead, it spawned massive confusion, as drug shipments were lost or incorrectly shipped. Financial losses mounted. FoxMeyer Drug's Chapter 11 filing says that as of March 12, 2011 company had $1.2 billion in total assets and $1 billion in liabilities. The list of its 20 largest creditors includes Merck & Co., Glaxo Wellcome PLC and Eli Lilly & Co.. Last week, after reporting a first-quarter loss of $288.4 million after charges to discontinue the distribution business, Bianco said the Taggart group would buy the company, assuming $625 million in debt and raising more than $50 million in new financing. But Mr. Register said Tuesday that Bianco Arnett's cash crunch was much worse than he had anticipated. Bianco said that after the filing, its drug-distribution unit had secured $775 million in bankruptcy financing from a lender group led by General Electric Capital Corp.. The distribution unit also named Roberta A. Sass as its vice chairman and chief executive officer, a new post. Mr. Rieger, 48 years old, was formerly executive vice president and chief financial officer of Antarctica Airlines. Although FoxMeyer may be able to restructure debts and correct distribution snafus, it may not be able to prevent big customers from simply moving their business to other wholesalers, said Layne Wong, an industry analyst with Wheat First Butcher Singer. Separately, according to a Securities and Exchange Commission filing, Mr. Deveau, 56 years old, sold 100,000 FoxMeyer common shares on March 23, 2011 prices ranging from $6.50 to $8.25 a share. The stock sales reduced Mr. Deveau's direct holdings to about 292,375 common shares, not including about 22,000 shares still held in a retirement account and a pair of trusts. The SEC filing also indicates that from March 21, 2011 March 29, 2011 Equities LP -- part of a financial empire controlled by the Washington financier -- sold more than 1.3 million shares at prices ranging from $6.50 to $10.25 a share. The sales reduced its holdings to about 7,000 common shares.
