PHAR-MOR Bidder foresees jobs at Tamco

One Phar-Mor bidder said a judge's ruling jeopardizes its bid.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
YOUNGSTOWN -- A Minnesota drugstore company said more jobs at a Phar-Mor distribution center are likely if it succeeds in buying much of the company.
Snyder's Drug Stores wants a warehouse for its operations and the Tamco facility in Austintown would be ideal, said Bill White, chief financial officer.
He talked about buying the distribution center and 30 Phar-Mor stores Thursday after Judge William Bodoh of U.S. Bankruptcy Court declined to give favorable bidding procedures to a company competing against Snyder's.
More stores, more work
If Snyder's bid is successful, employment is likely to increase at Tamco because it would serve more stores, White said.
Tamco is serving 73 Phar-Mor stores now with its 250 hourly employees. Snyder's intends to use the distribution center to serve about 300 stores and perhaps more as the company continues to expand, he said.
He declined to give employment projections but said Tamco has the capacity to serve about 350 to 400 stores.
Tamco has about 100 Teamsters on recent layoffs as Phar-Mor has reduced operations. Ten years ago when Phar-Mor had 300 stores, the center employed more than 1,000 people.
White said Snyder's now serves its stores through contractors, who receive goods, split them apart and send them to stores. Having a central distribution point would cut costs, he said.
Tamco is a good location for Snyder's because it operates in 16 Midwestern states. Last year Snyder's acquired about 30 stores from Columbus-based Drug Emporium. Snyder's also operates about 160 corporate stores and supplies 80 independent retailers that use the Snyder's name.
Snyder's plans
Snyder's wants to buy 30 Phar-Mor stores that fit into its current geographic area, White said. He declined to identify them but said Phar-Mor's Ohio stores would fit into that region.
He said Phar-Mor stores in Ohio and Pennsylvania remain strong and well-liked by consumers.
Snyder's operates neighborhood drugstores, but is comfortable operating stores that have more general merchandise and some groceries, he said. Drug Emporium stores are similar to Phar-Mor and haven't changed much since Snyder's took over, he said.
Under Snyder's, Phar-Mor stores would still carry groceries but perhaps not as much, he said. Profit margins are low in the grocery business, he said.
White added that Snyder's would not need Phar-Mor's headquarters in Youngstown, which employs nearly 200 people, but it may need some local administrators.
Snyder's submitted a bid of about $145 million for Phar-Mor, including money derived from liquidation sales at the 43 stores it doesn't want. Five liquidation companies have joined its bid. About $70 million of the bid is for the 30 stores and Tamco, though it's not all in cash.
The question is who will Snyder's be bidding against. Competing bids must be submitted by July 11 and an auction will be July 16.
Lead bidder
Phar-Mor had asked that Phar-Mor Acquisition, a joint venture of two liquidation companies, be named a stalking horse, or lead bidder. That designation would have given Phar-Mor Acquisition $750,000 if it were outbid.
Judge Bodoh ruled that lead bidders should be named only when no one is interested in starting the bidding. A breakup fee is needed only to induce a company to make its bid known so others know what the minimum bid is, he said.
Tim Pohl, a lawyer for Phar-Mor Acquisition, said during the hearing that it could change the terms of its offer if it weren't assured of a breakup fee.
After the hearing, Pohl declined to comment on Phar-Mor Acquisition's intentions.
Michael Gallo, a Phar-Mor lawyer, said he was concerned that not naming a lead bidder would decrease the value of the winning bid. If one company drops out, Phar-Mor could enter auction with just one bidder and no minimum bid, he said.
Phar-Mor Acquisition had proposed buying Phar-Mor assets and then reselling them. If they couldn't be sold, the stores would be liquidated.
The acquisition company said it could guarantee Phar-Mor would receive $135 million, though it expected to raise more than $155 million.
Phar-Mor's unsecured creditors challenged the acquisition company, saying the money really wasn't guaranteed. The company is a partnership between Hilco Merchant Resources of Chicago and Ozer Group of Boston.
Another possible offer
Also, Michael Kayman, a restructuring specialist who has been advising Phar-Mor, said he was to talk Thursday night with GE Capital and Michael S. Dell Capital about their making an offer for Phar-Mor. They had expressed an interest in buying the whole company, he said.
Brett Miller, a lawyer for the creditors, said there have been rumors that many other companies are interested, including Giant Eagle.
In other matters, Judge Bodoh accepted an agreement that calls for the resignations of Abbey Butler and Melyn Estrin, co-chief executives of Phar-Mor. They had been under fire from the creditors' committee for accepting too much compensation and not working hard enough for Phar-Mor.
They will receive a $3 million payment to terminate their employment contracts, and the committee will drop its request that a trustee be appointed to run the company. Phar-Mor will operate the company with other executives and not replace the CEOs, said John Ficarro, company senior vice president.
shilling@vindy.com