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PHAR-MOR Judge approves sale plan

By Cynthia Vinarsky

Thursday, October 11, 2001

The retailer is guaranteed $33 million for the sale of $73 million in merchandise.
YOUNGSTOWN -- Going-out-of-business sales can begin immediately at stores Phar-Mor is closing around the country, and the retailer expects to gain at least $33 million from the sale of store merchandise.
Judge William Bodoh of U.S. Bankruptcy Court approved Phar-Mor's plan to sell the merchandise to a liquidation group formed by Hilco Merchant Resources of Chicago and the Ozer Group in Boston. The group submitted the higher of two bids.
John Ficarro, Phar-Mor senior vice president, said the Hilco-Ozer group will conduct liquidation sales at 64 of the 65 stores Phar-Mor has slated for closing around the country. The 65th store has already been shut down.
The Youngstown-based discount drugstore chain filed for bankruptcy protection last month after it ran into credit problems with its suppliers. It will continue operating 74 other stores, including all its stores in the Mahoning Valley.
Details of deal: Ficarro said the Hilco-Ozer group agreed to pay Phar-Mor 45.5 percent of the total retail merchandise value of $73 million, and the retailer could get more depending on the success of the liquidation sales.
"We exceeded our expectations," Ficarro said of the deal. "We are satisfied."
Phar-Mor said in court documents that it preferred to sell all of the merchandise to a company rather than conduct its own clearance sales.
Ficarro said the merchandise doesn't include the inventory at the pharmacies of the stores being closed. That inventory is to be bought at cost by the companies that bought the prescription files. An auction of those files raised $23.4 million last week.
Other bidder: Atty. Michael Gallo, representing Phar-Mor, said another liquidation partnership that calls itself the Great American Group was the "stalking horse" bidder in the merchandise auction, meaning the group gained the right to special treatment by submitting the first offer.
When the Hilco-Ozer group's bid came in $2.2 million higher than the Great American Group's offer, Phar-Mor proposed paying the first bidder $200,000 to cover its expenses.
The U.S. Trustees office objected to the amount, saying Great American should have to prove that its expenses totaled $200,000.
Judge Bodoh overruled the objection and agreed to the payment, although he scolded Phar-Mor attorneys for proposing a change in an order he had issued earlier regarding how the stalking horse bidder should be compensated.
"Frankly, this makes my order look like a stalking Chihuahua, or maybe a gerbil," he joked.
Amounts owed: Phar-Mor is trying to raise cash to pay off creditors as part of its attempt to reorganize finances. The company's Chapter 11 filing listed debts of $300 million and assets of $345 million.
It owed Fleet Retail Finance $103 million at the time of the filing. Phar-Mor also owes its top 20 unsecured creditors about $85 million. Topping the list are Bank of New York at about $41 million and McKesson Drug Co. of Dallas at nearly $22 million.