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This article was originally published in The Gray Sheet

Executive Summary

McGaw is going public with the aim of reducing its long-term debt from $198.6 mil. to $100.3 mil., according to a registration statement for the offering filed with the Securities and Exchange Commission. The company is selling 10 mil. shares at an estimated price of $11.50 per share. An additional 1.3 mil. shares are to be sold by certain stockholders of McGaw. The bulk of McGaw's debt was accumulated in conjunction with the acquisition of the firm in October 1990 from the Kendall Company for approximately $210 mil. in cash by an investor group led by Caremark founder James Sweeney and backed by Alex, Brown and Sons and Donaldson, Lufkin and Jenrette Securities ("The Gray Sheet" Aug. 6, 1990, In Brief). Last spring, the company issued $150 mil. in notes, primarily to refinance debt that had been incurred as a result of the acquisition ("The Gray Sheet" March 2, In Brief). The public offering and subsequent debt reduction should help McGaw improve its bottom line by lessening interest expense. For the year ended Dec. 31, the company had interest expense of $22.2 mil. and a net loss of $18 mil. The 1992 net loss, which compares to net income of $1.2 mil. in 1991, also includes $7.6 mil. of deferred financing costs related to the April refinancing of acquisition debt and the write-off of $4.6 mil. of intangible assets recorded at the time of the acquisition. Revenues for the year were $309.4 mil., up 9.1% from 1991. McGaw provides its intravenous solutions and related equipment "to over 3,600 hospitals and over 1,500 alternate site health care providers in the United States," according to the prospectus. Sales of intravenous solutions and sets accounted for 43.8% of revenues in 1992, while sales of basic and specialty nutrition solutions made up 22.3% of total revenues. Infusion pumps and other related equipment accounted for 10.9% of revenues during the year. The firm notes that in the third quarter of 1992 it introduced its Horizon infusion pump, which "incorporates innovations in microprocessor and electro-mechanical technologies in order to increase functionality while reducing instrument size and weight." Other pharmacy products, including devices for combining drugs with solutions and the company's HyperFormer computerized compounding and filling system for nutrition formulations, accounted for 15.7% of 1992 revenues. McGaw also operates a pharmacy admixture service, which was piloted in 1991. The business did not contribute significantly to 1992 revenues and incurred $9.2 mil. in operating losses during the year. The firm anticipates that the service also will not be profitable in 1993. Noting the accomplishments made since acquiring the company in 1990, the registration statement says that in an effort to become "a leading supplier to the alternate site health care market" the firm has "increased its alternate site direct sales force from three to 32 sales personnel and expanded its product offering to this market to include complementary infusion products, including a disposable ambulatory infusion pump." Towards the goal of expanding McGaw's presence in the hospital market, the company has "successfully commercialized its Excel flexible plastic intravenous solution container, which offers certain environmental and disposal cost advantages over competitive products, and has obtained new accounts through a focused marketing and selling effort directed at particular hospital groups," the filing states. The firm also says it has entered into "alliances with other companies to obtain or develop new products for marketing and sale through McGaw's domestic distribution network and to gain greater access to international markets." Companies that have entered such agreements with McGaw include Becton-Dickinson, Imed, Kabi Pharmacia, and DuPont Merck Pharmaceutical.

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