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Executive Summary

FOXMEYER SELL-OFF POSSIBLE: DRUG WHOLESALER VALUED AT ABOUT $500 MIL., according to a dissident shareholder group, Centaur partners, which appears to be victorious in a proxy battle with Foxmeyer's parent company, National Intergroup. Centaur told shareholders at National Intergroup's July 25 annual meeting in Pittsburgh that Centaur will move "quickly" to "pursue the possibility" of selling Dallas-based Foxmeyer, and said after the meeting that Foxmeyer could fetch between $475 mil. and $525 mil. Centaur, which owns 16.5% of National Intergroup, made the valuation public after declaring it had won an "overwhelming majority" of shareholder proxy votes in support of its plan to liquidate the company's assets in order to "maximize" shareholder value. The sell-off of Foxmeyer and liquidation of National Intergroup holdings was the main feature of Centaur's proxy solicitation to defeat a management restructuring plan. Announced in early June, National Intergroup planned to sell the company's businesses with the exception of Foxmeyer, relocate the remainder of the company to Dallas and adopt the wholesaler's name ("The Pink Sheet" July 2, T&G-13 and June 18, T&G-15). In addition to Foxmeyer, National Intergroup participates in the oil business through Permian Partners and owns the Ben Franklin retail chain. Current management, led by Chairman and CEO Howard "Pete" Love, confirmed Centaur's victory projection. At a press conference following the meeting, Love said "our best guess" based on a preliminary review of proxies is that "we do not have enough votes" to elect a management slate for the board of directors. National Intergroup has not released an estimate of the drug distributor's potential open market value. However, it is projecting that Foxmeyer revenues will total more than $3 bil. by 1992 and that the wholesaler will have operating profits "competitive" with the rest of the industry. For the first quarter of fiscal 1991 (ended June 30), Foxmeyer sales are estimated to have increased 23%, with a 40% jump in operating income. Since its 1986 acquisition by National Intergroup, Foxmeyer has more than doubled the size of its wholesale drug distribution business, mainly through acquisitions, from $1.2 bil. to $2.7 bil. in the last fiscal year. Sales in fiscal 1990 grew 21%, and operating income jumped to $31.9 mil. after a loss of $27.7 mil. in fiscal 1989. The official results of the proxy vote will be validated Aug. 9, when shareholders are scheduled to reconvene at National Intergroup headquarters in Pittsburgh. In a press release announcing the preliminary results, National Intergroup maintained that the vote "was not a vote for control of the company." Furthermore, the company asserted, "recent conversations with our major shareholders indicate there is significant support for our restructuring program, which we remain convinced is in the best interests of the shareholders." National Intergroup is 60% held by institutional investors; Centaur is the largest private shareholder. All members of the current board together control less than 1% of outstanding company stock. Love, who has chaired National Intergroup for 10 years, would not comment on his plans in light of the apparent proxy defeat. Under the restructuring plan, he was scheduled to retire at the end of the current fiscal year, March 31, 1991, and to be succeeded by Foxmeyer Chairman and President Robert King. Like Love, King was on the management-backed slate of three board nominees. King's absence from the parent company's board was highlighted by Centaur as a sign that National Intergroup was not committed to its announced desire to concentrate on the drug wholesale business.

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