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MERRELL DOW's BID FOR ROBINS' PREMIUM OTC AND CONSUMER PRODUCTS BRANDS IS $840 mil.: OPERATIONS WOULD REMAIN IN RICHMOND AREA, MERRELL SAYS

Executive Summary

Merrell Dow's opening price for Robins' premium OTC and consumer products brands is $840 mil., or about 16 times operating earnings of $53 mil. generated by Robins' consumer products group in 1986. The offer is about 3.1 times the sales of the Robins consumer products segment, $267 mil. worldwide ($207 mil. U.S.) in 1986. By comparison, Procter & Gamble paid about one times 1984 sales (and 17 times net earnings) when it acquired Rich-Vicks in 1985 for about $1.2 bil. Beecham acquired the Norcliff Thayer OTC business from Revlon for $369 mil., or about 2.5 times sales. The Merrell Dow offer appears constructed to appeal to the bankruptcy court which is overseeing the firm's reorganization under Chapter 11. Only days before the Merrell offer was made on May 6, Robins submitted its reorganization plan to the Richmond bankruptcy court. The plan included a $1.75 bil. fund to settle Dalkon Shield litigation. Merrell Dow is offering to pay cash for seven Robins OTC brands and prescription strength line extensions. The seven brands are: Chap Stick lip balm, Dimetapp antihistamine/decongestant, Robitussin OTC and prescription cough products, Donnagel OTC and prescription antidiarrheal products, Dimetane antihistamine products, Dimacol decongestant products, and Z-Bec vitamins. Robins quickly issued a statement rejecting the Merrell Dow proposal. However, the prospect of a large infusion of cash which could be turned over quickly into a Dalkon Shield payment fund puts pressure on Robins to accept the deal, or a sweetened offer from Merrell or other bidders. The potential for ready cash might be particularly attractive to the bankruptcy court because the Robins reorganization plan submmited on May 1 is built on a complicated system of debt financing. One key element of the Merrell Dow plan which appears aimed at the bankruptcy court is the plan to keep Robins manufacturing in Richmond. A Merrell Dow press release notes that the firm "indicated an intent to offer employment to those employees directly involved with these product lines and to maintain the business in Richmond. Further, the company indicated its desire to establish a supply agreement with the A.H. Robins company for the products to be purchased." The prospect of closing down a major Richmond employer is a disincentive to the court permitting sale of the business. The assurances that Robins employees will not be terminated or relocated is a key difference between the Merrell Dow offer and prior offers to acquire Robins made by American Home Products and Rorer. While those offers would have assumed responsibility for the Dalkon Shield litigation, management would have been removed from the Richmond area and almost certainly have resulted in cutbacks in labor and operations. The press release notes that "Merrell Dow's proposal precludes any involvement by Merrell Dow in liability related to Dalkon Shield litigation." However, the tone of the release is sympathetic to Robins' efforts to deal with the liability situation, stating that "we believe our proposal identifies with [management's] interests and those of Robins' employees, their community, shareholders, creditors, and the parties to the Dalkon Shield litigation. Its acceptance would advance the settlement of claims and accelerate the company's programs to rebuild its business." Dow has a deep understanding of product liability pressures. The firm's chemical business has often had to defend itself against environmental pollution charges. When Dow acquired Merrell, it took on the responsibility of Bendectin product liability litigation. In the press release, Merrell Dow Pharmaceuticals U.S.A. President David Sharrock said that the Robins brands would fit well with Merrell Dow's "growing presence in the allergy field." Through its Lakeside Pharmaceuticals unit, Merrell Dow currently markets several cough/cold/allergy products, including: Cepacol lozenges and mouthwash, Cepastat throat lozenges, Novahistine DMX decongestant products, and Singlet decongestant/antihistamine products. The most significant synergy, however, would occur sometime in the future if Merrell Dow switches its non-sedating antihistamine product Seldane (terfenadine) from prescription to OTC marketing status. Seldane was about a $90 mil. product in 1986 in its first year on the market.
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