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American Home Offer Ends Bidding War

January 20, 1988

RICHMOND, Va. (AP) _ Two suitors courting A.H. Robins Co. have deferred to American Home Products Corp., which made a bid for the pharmaceutical company that apparently could not be matched.

Both Sanofi SA of France and Rorer Group Inc. said Wednesday they could not top American Home’s bid, which offered prompt payment to women who say they were injured by Robins’ Dalkon Shield birth control device.

Sanofi said in a statement that competing with American Home’s offer was not in the best interest of shareholders.

″It is not reasonable to us to change our proposal and compete with this type of offer,″ said Jean-Francois Dehecq, Sanofi’s vice chairman and chief operating officer.

Pennsylvania-based Rorer, the smallest company in the bidding, does not have the financial resources to match American Home’s offer, according to company spokeswoman Susan Atkins.

″It would not be financially prudent for the rest of our business,″ Ms. Atkins said.

Richmond-based Robins sought protection from creditors under Chapter 11 of the federal Bankruptcy Code in August 1985 because it was inundated by lawsuits from women who said they were injured by the Dalkon Shield intrauterine birth control device.

American Home’s plan would provide either a single payment of $2.375 billion in cash for Dalkon Shield claimants on the effective date of the reorganization, or $2.475 billion paid within one year of the date of the plan.

Sanofi had offered paying $2.47 billion over four years, while Rorer planned to raise $2.47 billion over seven years. American Home, with annual revenue over $3 billion, is the largest of the three bidders.

″With a bag of cash on the table, it’s pretty difficult to look at letters of credit,″ said H. Arvid Johnson, Robins’ senior vice president and general counsel.

″American Home Products has made a dramatic amount available immediately to claimants,″ said Larry Marsh, a financial analyst at First Wheat Securities in Richmond. The company has $1 billion in cash reserves, and ″they can set some of that aside,″ Marsh said.

A key factor in Robins’ acceptance of American Home’s offer was the endorsement of Murray Drabkin, a lawyer for the Dalkon Shield Claimant’s Committee. Previously, the claimants committee did not support specific acquistion plans.

″It was amazing because the claimants accepted the offer,″ Marsh said.

U.S. District Judge Robert R. Merhige Jr. earlier set $2.47 billion as the amount needed to cover nearly 200,000 Dalkon Shield claims. That decision triggered a series of offers and counter-offers for the firm.

″All of a sudden A.H. Robins has become a hot commodity. Before, people were not interested because they were buying into a lawsuit,″ said Martin I. Klein, a bankruptcy lawyer with the firm Dreyer and Traub in New York.

Klein said Merhige deserves credit for trying to reach a successful resolution of the case that will satisfy both claimants and shareholders.

When lawyers reached an impasse last summer, Merhige ordered limiting attorneys’ fees until the case was over. ″It was a very powerful incentive to reach an agreement,″ Klein said.

Marsh said Robins’ board would have preferred an agreement that would have allowed them more control over the company, but ″because of the unique nature of the Dalkon Shield claims, it wasn’t their decision to make.″

American Homes’ sweetened proposal offers a swap of its common stock presently valued at $700 million.

As part of the Robins reorganization plan that includes the American Home takeover, Aetna Life & Casualty Co. said Wednesday it has agreed to make a payment of $100 million in settlement of all outstanding insurance obligations between Aetna and Robins. Most of the payment will be contributed to the Dalkon Shield trust fund.

Aetna, based in Hartford, Conn., also said it has agreed to provide, for a premium, insurance policies worth $250 million to cover potential shortfalls in the Dalkon Shield trust fund and claims excluded from the fund.

The coverage and payment are intended to release Aetna from future Dalkon Shield liability, the insurance company said in a statement.

Robins’ plan for reorganization must be filed in bankruptcy court by midnight Monday. A public hearing on the adequacy of the company’s plan and disclosure statement is set for Feb. 19.

The insurance coverage and Aetna’s payment are contingent upon approval of the plan, as is the takover of Robins by American Home.

Under terms of its agreement with American Home Products, Aetna will sell three policies: a $150 million excess policy that will cover claims above the trust fund limit, and two $50 million policies for claimants who are ineligible for compensation by the fund.

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