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FOXMEYER IS THE PRIZE IN TUG-OF-WAR

Executive Summary

FOXMEYER IS THE PRIZE IN TUG-OF-WAR proxy battle between dissident shareholder group, Centaur Partners, and the drug wholesaler's parent company National Intergroup. Centaur Partners began soliciting shareholder proxies on June 25 in an effort to replace the current National Intergroup board of directors with Centaur's nominees at the company's upcoming annual meeting in Pittsburgh on July 25. Centaur, which owns 16.5% of outstanding National Intergroup shares, proposed in January that all of the company's holdings be liquidated in order to improve shareholder value in the company's stock. In addition to FoxMeyer, National Intergroup also has stakes in steel and oil and owns the Ben Franklin retail franchise. In early June, National Intergroup Chairman Howard Love announced that the company would sell off all of its businesses with the exception of FoxMeyer and the company would adopt the wholesaler's name ("The Pink Sheet" June 18, T&G-15). In addition, once the reorganization is completed, Love said he would step down in favor of FoxMeyer Drug President and CEO Robert King. In response to the National Intergroup reorganization proposal, the Centaur Group said to shareholders that "we do not believe that the incumbent board of directors' program goes far enough." Centaur added: "We believe that the company should sell FoxMeyer now and promptly distribute all of the proceeds of such sale to [National Intergroup] stockholders." Explaining its rationale for selling FoxMeyer, Centaur told shareholders that "FoxMeyers' margins have lagged consistently behind its main competitors, Bergen Brunswig and McKesson" since being acquired in 1986; that FoxMeyer's 1990 profit margin of 1.59% is well below the [preacquisition profit] level of 2.7% even though the 1990 level is above the 1989 margin of 0.37%; and that despite management's "new-found 'commitment'" to drug wholesaling, no FoxMeyer manager sits on the National Intergroup board. Since its acquisition by National Intergroup in 1986, FoxMeyer has doubled the size of its wholesale business, in large part through acquisition, from about $1.2 bil. to $2.4 bil. in FY 1990 (ended March 31). Sales grew 21% in the last fiscal year while operating earnings jumped five-fold to $38.1 mil. after an off-year in fiscal 1989. Centaur also maintained that National Intergroup "has overpaid for several...acquisitions in the distribution area in the past and has undermanaged them, and we don't trust management with excess cash from the sale of the company's various business segments in the future." Since being acquired by National Intergroup five years ago, FoxMeyer has bought three regional drug wholesalers -- Jacksonville, Fla.-based Lawrence Pharmaceuticals for $48.5 mil., the St. Louis division of Harris Wholesale for about $12.2 mil., and Chicago-based Louis Zahn Drug for an undisclosed amount. In addition to seeking to replace current board members, Centaur is also asking shareholder to vote on measures regarding National Intergroup's "poison pill" provision, confidential voting and "golden parachutes."
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