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Executive Summary

R.P. SCHERER GOING PRIVATE; $ 352 MIL. PRICE IS 98% PREMIUM over the price the stock was trading at in April 1988 when the intrafamily struggle for the softgel capsule manufacturer erupted. When principal stockholder Karla Scherer and her brother John Scherer first suggested last year that the company look at the possibility of a sale, Scherer's roughly 10 mil. shares were trading at around $ 16. The purchase price announced May 1 was $ 31.75 per share for the approximately 11.1 mil. shares outstanding on a fully diluted basis, or about $ 352.4 mil. Scherer and Shearson Lehman Hutton Holdings jointly announced that they have signed a definitive agreement for a leveraged buyout via a cash tender offer for up to 88.8% of Scherer common. While the price tag is considerably above what Scherer was trading at in 1988, it is somewhat lower than the trading price before the offer was made public. Trading was suspended mid-day May 1 when Scherer was at around 33-3/8; the buyout announcement was made after the market closed. Under the agreement, RPS Corp., a buyout group formed by Shearson Lehman and its Merchant Banking Partnerships, will make the tender offer for the common stocks, including shares which would be issuable on conversion of Class B and preferred stocks and employee stock options. The offer is scheduled to commence on May 5. The agreement is contingent upon, among other things, adequate financing and on RPS acquiring at least 51% of the voting power of R.P. Scherer. Shearson said "it is prepared to commit approximately $ 200 mil. in subordinated debt and equity" to close the deal. The transaction also involves assumption of about $ 54 mil. in debt. Karla Scherer and her brother together control about 38% of the company's stock through common, Class B and preferred share holdings, and institutional investors control more than 10% of the total voting power. The Shearson/Scherer deal was consummated after Scherer said April 11 that it was "providing information to a number of prospective purchasers." Among them was Deutsche Gelatine-Fabriken, a West German gelatin maker that had publicly stated its interest in buying Scherer in February and controlled approximately 10% of Scherer voting power. Scherer said it opened the bids on April 26. DGF withdrew its acquisition bid on April 29 following discussions with the company. The announcement appears to end the company's search for a way to end the year-long family dispute nearly seven months after the firm announced it had asked Goldman Sachs to explore alternatives to a sale. The dispute grew out of divorce proceedings between Karla Scherer and her former husband, and then CEO, Peter Fink. Scherer's April 1988 suggestion that the board consider sellling the company engendered a bitter proxy fight which resulted in a realigned board that switched from opposing to the sale to supporting a Sept. 30 plan to consider all alternatives ("The Pink Sheet" Oct. 10, T&G-4).

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