FoxMeyer goes Chap. 11, creates new CEO position

Drug Store News, Sept 9, 1996

CARROLLTON, Texas--In a mere week's time, FoxMeyer Drug, the country's fourth largest drug wholesaler, went from being an acquisition candidate about to be placed in the hands of a turnaround specialist to a company under the protection of Chapter 11 of the U.S. Bankruptcy court, now in the hands of another turnaround specialist.

Late last month, FoxMeyer declared that its agreement to be sold to a New Jersey investor group, led by turnaround specialist William F. Taggart, had been terminated seven days after it was first announced.

At the same time, FoxMeyer Drug, to ensure an adequate supply of goods to its customers, announced it had filed for protection under Chapter 11 of the U.S. Bankruptcy Code. FoxMeyer executives said that despite reaching an agreement in June on a new and expanded banking facility. recent restrictions of credit terms made the filing a necessity.

In another surprise move, FoxMeyer Drug also announced that it had just hired Robert A. Peiser to fill the newly created position of vice chairman and chief executive officer.

Most recently executive vice president and chief financial officer of Trans World Airlines, Peiser is credited with implementing the cost reductions and the 1995 financial restructurings that resulted in a speedy reorganization under Chapter 11.

Peiser quit TWA June 20, citing differences in approach between himself and TWA management in implementing the next phase of the carrier's rebuilding process. At FoxMeyer Drug, he will report to Abbey J. Butler and Melvyn J. Estrin, the co-chairmen and co-chief executive officers of FoxMeyer Health Corp., the parent to FoxMeyer Drug. FoxMeyer Health was not included in the bankruptcy filing.

In a development that could expedite the turnaround process, FoxMeyer Drug also announced that it has secured a $775 million financing package arranged by G.E. Capital Services as part of its bankruptcy filing.

William Estes, president and chief operating officer of FoxMeyer Drug, said with the filing and the $775 million financing package, he was confident that the company's relations with its suppliers and customers would quickly return to normal.

Estes said although FoxMeyer had explained to its suppliers that they would be able to operate successfully outside of Chapter 11, some suppliers preferred the certainty of Chapter 11, where they knew that as post-petition suppliers they would receive priority status by the court for any new goods that were purchased.

Despite the filing, daily operations would continue as usual for FoxMeyer Drug. "As far as our company's customers are concerned, we expect to provide them with as good or better service levels as before," Estes said.

Estes also said that FoxMeyer's basic drug wholesaling business continues to show strong improvement, and that it should continue to improve due to the new credit assurances.

"Funds will now be available to invest in the products and services required to enhance our customers' businesses and further strengthen relationships," he said.

"Over the past few months, we have taken a number of steps to reduce costs and improve operations. We have significantly reduced distribution center expenses, instituted a wage freeze and eliminated unprofitable contracts.

"I am confident that, with our supplier relationships back on track, we will be able to return to profitability."