• U.S.

So What If It’s Bankrupt?

3 minute read
Janice M. Horowitz

Even in the era of corporate raiders, when almost any company smaller than General Motors is fair game, A.H. Robins seemed to be an unlikely target. The Richmond pharmaceutical firm has been bogged down in Chapter 11 bankruptcy proceedings since 1985, and faces billions of dollars in claims from women who say they were injured by Robins’ Dalkon Shield, a small plastic intrauterine birth-control device. Yet in the past few weeks suitors lined up as if Robins had discovered a cure for cancer. Two U.S. drug companies (Manhattan-based American Home Products and the Rorer Group of suburban Philadelphia) and one foreign pharmaceutical and cosmetics house (Sanofi of Paris) made offers for Robins. As the bids proliferated, a federal bankruptcy judge gave Robins a Jan. 6 deadline to pick a suitor and file a reorganization plan.

Late last week, after the Robins board of directors met for an extraordinary 5 1/2 hours on New Year’s Eve and nearly six hours on New Year’s Day, the company announced that the winner of the bidding battle was Sanofi. The second largest French drug company, which manufactures everything from Nina Ricci perfumes to pills that fight hardening of the arteries, will pay $3.08 billion. The price includes $600 million for a 58% interest in Robins and $2.48 billion that will be put into a trust fund to pay damages to Dalkon Shield claimants.

Why did Sanofi and the other bidders rush for Robins? The answer lies in such mundane but popular household items as Robitussin and Dimetapp cold medicines, Chap Stick lip balm and Sergeant’s flea-and-tick collars. Those are among the products that make Robins one of the most profitable bankrupt companies in history. In the first three quarters of 1987, Robins earned $60 million on sales of $621 million, compared with profits of $55 million on revenues of $579 million during the same period of 1986.

But the continuing success of Robins’ products has been overshadowed by one costly, disastrous mistake. Introduced in 1971, the Dalkon Shield had to be withdrawn from the market in 1974 after reports that the device was causing such problems as infertility and life-threatening pelvic infections. By August 1985, when Robins started bankruptcy proceedings to protect itself from a torrent of lawsuits, it had paid $500 million in damages to 9,500 claimants, and 5,100 cases were still pending.

In 1986 the bankruptcy court required Robins to conduct a media campaign to ; alert all Dalkon Shield users about its dangers. That resulted in 190,000 more claims that have to be settled. Last month Judge Robert Merhige Jr. of the U.S. District Court in Richmond ordered the company to put $2.48 billion into a trust fund to cover Dalkon Shield claims. That is not an absolute cap on what Robins will have to pay, but it represents the best estimate of the company’s liability.

Merhige’s ruling removed much of the uncertainty surrounding Robins and encouraged the flurry of takeover bids. Right through New Year’s Day, the contestants kept raising the ante. American Home Products, the maker of Anacin headache tablets, reportedly offered $3.08 billion, as Sanofi did. But A.H.P. wanted all of Robins, while Sanofi was content with 58%. The last announced bid from Rorer, the manufacturer of Maalox antacid, was valued at $2.98 billion.

The Robins-Sanofi deal still leaves the Dalkon Shield claimants in limbo. They are concerned because Merhige said he would allow an undefined “reasonable” period for the newly structured firm to settle its claims. Some victims of the Dalkon Shield may not see a penny for years to come.

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