YOUNGSTOWN Phar-Mor plans sale at auction

By DON SHILLING
VINDICATOR BUSINESS EDITOR
YOUNGSTOWN -- The end of Phar-Mor is near.
The ailing discount drugstore chain is unable to afford the huge operating losses at its stores and wants to hire auction specialists to sell them.
A hearing will be Thursday in U.S. Bankruptcy Court on Phar-Mor's request that Phar-Mor Acquisition be named as exclusive agent in selling the company's assets, subject to higher bids.
The goal is to eventually sell Phar-Mor's Tamco distribution center in Austintown and its remaining 73 stores in large groups or perhaps one group, said John Ficarro, company senior vice president. Stores would be liquidated if they are not sold.
Phar-Mor has a downtown headquarters with nearly 200 workers.
Auction experts
Phar-Mor Acquisition is an entity created by Hilco Merchant Resources of Chicago and Ozer Group of Boston, which are experts in auctioning and liquidating companies.
Ficarro said Phar-Mor is proposing naming it as a selling agent because its offer is higher than any offer to buy all of its stores. Phar-Mor and its creditors committee have been reviewing other bids for weeks, including one from Snyder's Drug Stores of Minnesota.
Phar-Mor Acquisition is guaranteeing paying $135 million to Phar-Mor's estate if it is selected as the agent.
First, however, it must be named the lead, or stalking horse, bidder. If it attains that status, it would receive $750,000 if another bid is accepted.
Under Phar-Mor's proposed schedule, other companies that want to outbid Phar-Mor Acquisition would have until July 11 to submit bids. Phar-Mor is proposing a July 16 auction for these companies, with a court hearing to approve the sale July 18.
If Phar-Mor Acquisition survives this process, it would then begin selling Phar-Mor stores.
Under the agreement with Phar-Mor Acquisition, Phar-Mor would receive 75 percent of the sale amount that is in excess of $135 million, and Phar-Mor Acquisition would receive 25 percent.
The two companies will split the proceeds that are more than $155 million.
Ficarro said Phar-Mor's secured creditors, which must be paid dollar for dollar, are owed $120 million. This includes $40 million owned to Fleet Retail Finance of Boston, which lends the company money for working capital, money owed to employees and claims that were filed after the Sept. 24 bankruptcy filing.
Phar-Mor Acquisition is guaranteeing only $15 million beyond that for unsecured claims totaling $170 million. If the sale amount is more than $135 million, more money would be available to pay off those claims.
Phar-Mor's co-chief executives, Melvyn Estrin and Abbey Butler, have the option of joining Phar-Mor Acquisition. If they pay $6.5 million toward the guaranteed payment, they would receive half of the agent's share of the proceeds.
When Phar-Mor filed for bankruptcy protection, it closed nearly half of its stores but said it would emerge from bankruptcy court as an operating company.
Heavy losses have caused it to decide otherwise, and creditors have pushed executives for a sale of assets. Phar-Mor lost $12.2 million on sales of $181.7 million in the company's third quarter, which ended March 30.