As bidding heats up, Snyder's raises ante for Phar-Mor assets

Drug Store News, July 22, 2002 by Liz Parks

YOUNGSTOWN, Ohio -- Multiple groups are vying to buy some assets of bankrupt PharMor at its auction sale, which was scheduled for July 16, but only two entities are in contention for the majority of the chain's assets.

Those two are: Snyder's Drug Stores, which has been joined by Gordon Brothers in its new higher bid, and a coalition that consists of Northbrook, Ill.-based Hilco Merchant Resources, The Ozer Group of Boston and Giant Eagle supermarkets. Hilco and Ozer are asset disposition specialists.

According to two sources who were present when the final offers were made July 11, there are multiple vendors competing for various assets, such as prescription files, inventory and furniture. One source confirmed that the two major bidders are Snyder's and the Hilco/Ozer/Giant Eagle coalition.

This source also said it was hard to compare the relative value of the competing bids because the major bidders are not bidding for the same group of assets.

The source said the Snyder's/Gordon Brothers $157 million bid covered much of Phar-Mor's assets and its 700,000-square-foot Tamco warehouse, while the Hilco/Ozer/Giant Eagle bid did not include the warehouse. Phar-Mor, once a $1.2 billion chain with 139 drug stores, operates 73 stores in eight states.

Phar-Mor Acquisition, a joint venture corporation created by Hilco and Ozer to bid for Phar-Mor's assets, fell apart, one source said, because the two former executives of Phar-Mor--Melvyn Estrin and Abbey Butler--had an option to participate in the Phar-Mor Acquisition offer if they choose. The Official Committee of Unsecured Creditors of Phar-Mor, this source said, refused to accept that arrangement.

In Phar-Mor Acquisition's last public offer before the bidding process began, it had pledged a minimum of $137 and a maximum of $155 million. Snyder's raised it's bid from $61.4 million after being joined by Gordon Brothers.

Among the other companies that reportedly expressed interest in Phar-Mor, sources said, are GE Capital and Michael S. Dell Capital.

Gordon Barker, Snyder's chief executive officer, said he considers Snyder's most recent offer to be "very fair and equitable."

Sid Lambersky, a vice president for Northbrook, Ill.-based Hilco Management Resources, said he is "still very interested in Phar-Mor" and remains hopeful that his group's bid will win out. Corey Lipoff, executive vice president for Hilco, said if Hilco's bid is successful the group will try to sell as many of Phar-Mor's stores as they can "to on-going concerns so they can remain open, preserving jobs."

On June 27, the bankruptcy court for the northern district of Ohio ruled that an auction for the assets of Phar-Mor Drug stores will be held July 16. Judge William Bodoh also ruled that there would be no lead bidder since two offers for Phar-Mor were already public.

By ruling that there would be no lead bidder to kick off the bidding, Judge Bodoh eliminated the need for the $750,000 break-up fee, which had been requested by Phar-Mor Acquisition in its motion to be named the lead bidder. Barker said the judge's ruling "keeps the playing field level because it treats all bidders as equals."

In other matters, Judge Bodoh accepted an agreement that awards a total of $3 million to Phar-Mor executives Butler and Estrin in exchange for their resigning from their posts at the company.

The Official Committee of Unsecured creditors for Phar-Mor, which objected in court to Phar-Mor Acquisitions' attempt to become the lead bidder and whose objections, in part, a source said, was based on the possible involvement of Estrin and Butler in the bidding process, has dropped its request that a trustee be named to replace Butler and Estrin.

A source close to the negotiations said the agreement giving the $3 million to Butler and Estrin, which the creditors' committee signed, was a "quid pro quid that allowed the sales process to go forward."