Creditors file suit against Revco buyout participants

Drug Store News, Nov 19, 1990

Creditors file suit against Revco buyout participants

TWINSBURG, Ohio - Revco's trade creditors have filed suit against the participants in the company's 1986 leveraged buyout, charging that the LBO was based on fraudulent conveyance. However, the litigants have asked U.S. Bankruptcy Court to delay action on the suit to give time to all parties to negotiate a reorganization settlement without litigation.

The move came on the last day in which litigation could be filed against some of the LBO participants before expiration of a statute of limitations.

Representatives of both the creditors committees and Revco described it as a way to preserve a "fallback" option in case all parties fail to negotiate a workable settlement to the $1.45 billion in claims against the company.

The suit names some 7,000 plaintiffs which it claims could be liable for damages. Among the defendants named were Revco's shareholders and bondholders; investment bankers Salomon Brothers and Golenberg & Co.; and Revco's banks, including Marine Midland, Ameritrust and Wells Fargo Bank.

The suit is based on the findings of court-appointed special examiner Barry Zaretsky, who reviewed the junk bond-financed buyout at length last summer. Zaretsky issued a preliminary report in August, charging that the deal left Revco with "insufficient capital to conduct its business."

However, both Zaretsky and the litigants in the suit are arguing that a negotiated settlement would be vastly preferable to legal action. So too is Revco, despite the fact that it could stand to gain enormously if litigation succeeded in "undoing" the LBO.

Revco itself had planned to launch its own suit to avoid expiration of the statute of limitations, Revco spokesperson Diana Leuptow said.

Meanwhile, neither the trade creditors nor Revco has filed a plan of reorganization with the court since the expiration of Revco's exclusivity deadline Oct. 31.