Avatex settles with FoxMeyer trustee for $33M: its stake in Phar-Mor hangs in balance

Drug Store News, August 18, 1997 by Allene Symons

Dallas--Avatex Corp. will pay $33 million to settle a case brought by the trustee of the estate representing its defunct former company, FoxMeyer Health Corp.

The settlement has implications for creditors of the former FoxMeyer and Phar-Mor. Avatex, in partnership with Phar-Mor chief executive Robert Haft, own a 31 percent stake in Phar-Mor, which could be affected by this settlement.

FoxMeyer Health sought Chapter 11 bankruptcy protection in August 1996, and after dissolution under Chapter 7 bankruptcy provisions, its remaining assets were acquired by McKesson Corp. in December 1996. The surviving parent, FoxMeyer Health Corp., changed its name to Avatex last March.

This settlement is the result of a suit brought against Avatex by the trustee of FoxMeyer. In the suit, the trustee alleged that Avatex had transferred assets to the FoxMeyer parent company before it filed for bankruptcy protection, thus shielding assets from its unsecured creditors.

If the settlement is approved by the U.S. Bankruptcy Court for the district of Delaware, the $33 million will be paid to the FoxMeyer estate and eventually be distributed to unsecured creditors.

If approved, Avatex will pay the trustee $25 million and execute a three-year, interest-bearing $8 million promissory note. Phar-Mor stock will be used as collateral for the note.

The settlement could have an impact on the ownership of Phar-Mor. Avatex and Haft, through a partnership, own 31 percent of Phar-Mor, making the partners the company's largest share-holders. A buy-sell clause, which would enable Haft or Avatex to buy or sell their shares to the other partner, had been frozen along with other assets while this lawsuit was pending. Now Avatex is free to use $6 million of its assets to negotiate with Haft for the purchase of his 30 percent share of the partnership and the partnership's stake in Phar-Mor.

According to Philip Vick, financial analyst for Avatex, negotiations between Haft and Avatex are underway. However, Gary Holmes, spokesperson for Phar-Mor, told Drug Store News, "There is no agreement to proceed with a buyout either way," although he acknowledged that at press time, Haft and Avatex "are still in discussions."

In exchange for the settlement, Avatex is released from all claims and restrictions on its operations. Avatex will also receive a 30 percent interest in proceeds of other litigation that may be brought against third parties by the trustee of FoxMeyer.