Bidder's dropping out was a disappointment
Giant Eagle wouldn't operate Phar-Mor stores but would control Tamco, prescriptions at 27 stores and four store leases.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
YOUNGSTOWN -- A Phar-Mor official said he was disappointed when Snyder's Drug Stores dropped out of the bidding for Phar-Mor assets, saying it was still close to being the high bid.
"We were somewhat shocked," said John Ficarro, Phar-Mor senior vice president.
For nearly 14 hours Tuesday, Snyder's was going back and forth in bidding with a group that included Hilco Merchant Resources of Chicago and Giant Eagle of Pittsburgh.
The Hilco group had the top bid at about $141 million, which was about $5 million more than they started at, but Snyder's wasn't far off, Ficarro said.
The decision by officials of the Minnesota drugstore chain was disappointing because they had raised expectations of Phar-Mor's employees, who were pressuring company executives to accept the Snyder's bid, Ficarro said.
Had labor agreement
Snyder's had reached a labor agreement with the union representing 250 hourly workers at Phar-Mor's Tamco distribution center and said it would hire more workers because it needed Tamco to be the warehouse for 300 stores it supplies.
It also said it wanted to operate 30 of Phar-Mor's 73 stores and retain some of Phar-Mor's 180-person corporate staff.
John Greer, Snyder's chief operating officer, said Wednesday that he couldn't comment on the auction or Snyder's intentions.
U.S. Bankruptcy Court Judge William Bodoh was to consider today whether to approve the sale to the Hilco group.
Ficarro said he wasn't sure if Snyder's had the ability to object to the sale because it withdrew from the auction.
Both Ficarro and Brett Miller, lawyer for the unsecured creditors, said the Hilco bid was clearly worth more than the Snyder's bid. There were other bidders but none were making serious offers, they said.
In Snyder's' bid, certain noncash items were given cash value, which increased the value of the bid, Ficarro said. One of these was Snyder's intention to keep stores operating.
Bid was favored
"We were doing everything possible to favor their bid within the parameter of the rules," he said.
Snyder's use of corporate notes in its bid, instead of paying in all cash, was given a small discount, he said.
Ficarro said he wasn't aware that the Hilco group intended to operate any Phar-Mor stores if its bid is accepted, but a Hilco official said the winning group will operate 21 stores as it tries to sell them as ongoing operations.
Sid Lambersky, vice president of business development for Hilco, declined to identify the stores.
Hilco and another bidding partner, the Ozer Group of Boston, would close the remaining 52 stores and sell the inventory to other retailers, Lambersky said.
Giant Eagle and CVS would receive the prescription files for these stores and switch them to their stores.
Rob Borella, a Giant Eagle spokesman, said the company would control the files and prescription inventory of 27 stores.
Giant Eagle would not operate any of these stores.
Borella said most of the 27 stores are in the Pittsburgh area but some are in the Youngstown area. He declined to say if any of the Youngstown area stores are among the 21 stores that would continue to be operated by Hilco.
A CVS spokesman said it would acquire the prescription files for Phar-Mor stores that would close in eastern Pennsylvania, North Carolina and Virginia.
Also, Giant Eagle would take control of the lease for Tamco and its inventory. It is the landlord for the Austintown property.
Borella said Giant Eagle isn't sure what will happen at Tamco. Giant Eagle has five distribution centers in Ohio and Pennsylvania for groceries and one in Washington, Pa., for its health and beauty products.
During the auction, Giant Eagle offered the other bidders the opportunity to operate some stores and Tamco, but was rejected.
Ficarro said the top bid also calls for Giant Eagle to retain the leases for 10 Phar-Mor stores. Giant Eagle would keep four of those leases so it would control what store opens in those locations, he said.
With the other six, the leases would be rejected, meaning the landlord would receive control but would have to file a claim against the estate in order to be paid.
Miller said the other leases will be sold, with the money going to the estate.
Also remaining is the collection of more than $30 million that is owed to Phar-Mor in accounts receivable, he said.
Once these items are concluded, creditors will know how much money they will receive, he said.
Unsecured creditors are owed about $175 million, although that amount will change depending on what happens with the leases, he said. Some of the creditors are landlords.
A source close to the case said unsecured creditors are expected to receive between 15 cents and 20 cents for each dollar they are owed.
Secured creditors, which are those that will be paid dollar for dollar, are owed about $120 million. Those claims include about $40 million owed to Fleet Retail Finance of Boston, Phar-Mor's main lender, and money owed to employees.