PHAR-MOR Group prefers Snyder's

The creditors argue that the company's sale plan will destroy the business and eliminate the jobs for good.
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
YOUNGSTOWN -- Phar-Mor's unsecured creditors are asking a U.S. Bankruptcy Court judge to give Snyder's Drug Stores of Minnesota a chance to buy the local retailer out of bankruptcy, thus keeping at least 30 stores operating and saving "thousands of jobs."
A committee representing the creditors filed a motion Wednesday objecting to Phar-Mor's plan to sell the discount drugstore chain to a pair of companies that are known as experts in auctioning and liquidating troubled firms.
Judge William Bodoh was to conduct a hearing on the matter today, and an auction is scheduled July 16.
The creditors committee argued that selling the company to Phar-Mor Acquisition, an entity to be created by liquidation experts Hilco Merchant Resources of Chicago and Ozer Group of Boston, would likely end in the going-out-of-business sales at all stores.
The plan "is essentially a liquidation of the debtor's assets, and the creditors' committee does not support a liquidation," they wrote.
Liquidation possible
John Ficarro, Phar-Mor senior vice president, said this week that the plan isn't intended to be a liquidation, although that could happen if stores can't be sold. The company hopes to sell the stores in large groups, he said.
Phar-Mor Acquisition is guaranteeing payment of $135 million to Phar-Mor's estate, if it is selected as the sale agent.
The creditors' committee said it has been in discussions with Snyder's Drug Stores for months regarding a bid for the troubled Youngstown-based Phar-Mor chain, which includes 73 stores and the Tamco distribution center in Austintown.
Phar-Mor also has a downtown headquarters, which employs about 200.
The committee's motion says Snyder's wants to buy 30 of Phar-Mor's retail stores and its distribution center, its pharmacy inventory, prescription lists, petty cash, inventory and furniture for those stores. It also would buy the leases for the stores, which are not identified in the motion.
Snyder's bid includes a $17.5 million three-year note. The company would assume $19 million of the debtor's accounts payable, $10 million in lease obligations at the distribution center, and $2 million in obligations related to leases and contracts.
Snyder's would provide a $10 million letter of credit to Fleet Retail Finance of Boston, which lends the company money for working capital.
Support for Snyder's bid
The creditors wrote that they believe the Snyder's bid is "higher and better" than the one the company has recommended.
They stated the Snyder's bid is supported by Phar-Mor's union employees at the Tamco distribution center and by an ad hoc group of company pharmacists "all of whom would likely lose their jobs" under the alternative, company-supported plan.
The creditors also objected to Phar-Mor's plan to allow Melvyn Estrin and Abbey Butler, the company's co-chief executives, the option of joining the acquisition entity.
Under the Phar-Mor Acquisition plan, the Phar-Mor estate would receive 75 percent of the sale amount in excess of $135 million, and Phar-Mor Acquisition would get 25 percent, with the two companies splitting any proceeds exceeding $155 million.
The entity would guarantee $15 million for unsecured claims, which total $170 million.
The creditors urged Judge Bodoh not to name Phar-Mor Acquisition the lead bidder, or stalking-horse bidder, as the company has requested. As the stalking-horse bidder, the liquidation entity would receive $750,000 if another bid is accepted.
The committee is asking the judge to level the playing field by eliminating stalking-horse protection and treating all bidders equally.
Phar-Mor has closed 65 of its stores since it filed for Chapter 11 bankruptcy protection last year.
Officials vowed at first to emerge as an operating company, but they said this week that heavy losses made it impossible to avoid a sale. The company lost $48.8 million in 2001; its losses last quarter totaled $12.2 million.
vinarsky@vindy.com