500 Virginia Drive
Fort Washington, Pennsylvania 19034
Sales: $845 million
Market Value: $535 million
Stock Index: New York
Rorer Group is less recognized as a major drug researcher than as an intelligent pharmaceutical concern persistent in its ability to foil takeover attempts. What so attracts would-be purchasers is Rorer’s small size relative to its broad line of products. Though once described as a single-product enterprise, Rorer reduced its dependence on sales of the antacid Maalox by initiating an aggressive program of acquisition and internal development. Thus far Rorer has been successful in maintaining its independence; how much longer it can continue this is uncertain.
William H. Rorer, founder of William H. Rorer, Inc., established his pharmaceutical business in Pennsylvannia at the beginning of the 20th century. The small business was passed from father to son when Gerald F. Rorer assumed responsibility in administrating the company. The younger Rorer, graduating from Haverford College in 1929 and the Philadelphia College of Pharmacy and Science in 1931, is responsible for transforming the family-run company into a large publicly owned corporation. By 1950 Gerald Rorer served as company president and two years later he became company chairman as well.
Rorer’s major pharmaceutical contribution was the discovery of the antacid Maalox in the early 1950’s. While Maalox’s anti-ulcer therapy was replaced by the revolutionary treatment available in the more recent drug called Tagamet, Maalox’s continued popularity is evident since the product remains a household staple. When Maalox was first introduced it was an immediate success. Yet Gerald Rorer realized that his company’s reliance on this product’s sales also signified an area of vulnerability. Should a similar product compete directly with Maalox’s market, company profits could be seriously jeopardized.
Consequently, in 1968 Gerald Rorer decided to merge his company with Amchem Products, Inc., an agricultural and specialty chemical manufacturer. Amchen, also located in Pennsylvania, pioneered the development of herbicides. The combined interests of the two companies now offered a diversified product line and a broadened earnings base. The 1969 profit figures for the merger, however, were disappointing. Sales of Amiben, one of Amchem’s most important herbicides, were hurt by liquidations of trade inventories. The 8% drop in profits was also a result of higher taxes and operating costs.
By 1970 Rorer-Amchem registered a record high for sales and earnings. The $1.28 earnings per share of stock on $133 million sales was generated from the increased demands for Rorer pharmaceuticals and the new penetration of foreign markets. Long term prospects looked favorable as the company invested in research, an expanded agricultural chemical sales force, and new acquisitions.
Despite such a promising future, however, the Rorer-Amchem merger was laden with difficulties. In the following years Rorer’s Maalox registered higher and higher profits. Amchem, on the other hand, went through a series of cyclical gains and losses. For this reason, in 1975 Rorer-Amchem stock sold at $20 per share, a figure which represented only ten times predicted earnings. Compared to other pharmaceutical companies Rorer-Amchem stock was not highly recommended.
In February of 1976 Gerald Rorer died. He was 68 years old and had served as president of the Pharmaceutical Manufacturing Association and as vice chairman of the Academy of Natural Sciences. Probably in deference to the late president’s role in organizing the merger, divestiture from the unprofitable enterprise did not take place until the September following his death. Rorer-Amchem management agreed to sell the Amchem division to Union Carbide. This large chemical company had enough money and resources to re-establish Amiben’s diminishing market share; the larger companies such as Lilly, Monsanto, and Bayer A.G. had already encroached on the sales of the herbicide by marketing similar products.
On the one hand, Rorer’s reduced operations meant reduced sales. On the other hand, it meant a higher rating on Wall Street. The agreement to sell the chemical division resulted in an improvement on the company balance sheet. Without any longterm debts, and guarding a comfortable amount of cash in revenue, the Rorer Group was prepared to expand into health care markets. By concentrating on the field it knew best Rorer positioned itself to become a full-line pharmaceutical manufacturer.
Rorer’s new chairman, John Eckman, directed the company’s era of growth and expansion. Maalox sales continued to increase (in 1975 Eckman boasted that Maalox had outsold the very popular Alka-Seltzer). Interestingly enough, under Eckman’s directive Maalox became the focal point of Rorer’s marketing strategy. Unlike the past where a concerted effort had been made to shift the company’s image of dependence away from sales of the antacid, Eckman, through a sophisticated advertising campaign, actually increased the product’s visibility. “Piggyback” products such as Maalox Plus and Maalox Therapeutic Concentrate were released on the market.
The most important reason why Rorer was no longer reluctant to promote this product, and why Rorer actually used Maalox to embark on its first major venture into consumer advertising, was that through an aggresssive policy of acquisition the company was gaining respect as a leader in the health care field. By the end of 1979 sales peaked at $260.5 million, a 16.1% increase from sales in 1978. Aside from the ever popular antacid, several small, profitable and well-timed acquisitions, including Dooner Labs, a manufacturer of proprietary drugs, contributed to increased earnings.
During this time a number of recently developed drugs received encouraging market reception. One Rorer drug released as a Maalox-aspirin combination, called Ascrip-tin, captured 25% more of the market in 1979 than in 1978. Slo-Phyllin, a treatment for asthma, generated $7 million in sales, representing an increase of 70% over the previous year. The Quaalude sedative-hypnotic product line, a controversial favorite of illegal drug-users, was discontinued because of adverse publicity. In addition to the market entrance of new drugs, Rorer’s increased funding for research and development resulted in a number of drugs which promised to be very lucrative. Lidamidine, an antidiarrheal drug awaiting market approval, was expected to capture an impressive portion of the $90 million market. Other drugs in the preliminary testing stage included a treatment for cardiac arrythmias, an anti-fungal drug, and an anti-inflammatory drug.
International operations grew by 22% in 1979, including the acquisition of a major interest in Japan’s Kyoritsu Pharmaceutical Industry Company. Plans were under way to market Maalox in Spain and the U.K. Rorer’s Richard Manufacturing Company subsidiary, a supplier of surgical equipment, posted a domestic and foreign sales figure of $44 million in 1978. Richard’s otological products included joint replacements for hips, knees and ankles, while products used in middle-ear surgery represented an exciting area of growth. Surgical products from the Sonometrics Inc., Dyonics Inc., and Cryomedics Inc., all Rorer subsidiaries, reported close to a $11 million sales figure for 1978.
As the company entered the 1980’s overall earnings and sales figures indicated that the company might be one of the fastest growing pharmaceutical manufacturers in the industry. Pharmaceuticals continued to contribute to a major portion of sales and profits with stomach aids accounting for some 50% of the totals. Ascriptin quickly became Rorer’s fastest selling drug with sales gains averaging 30% annually. Dyonics surgical equipment subsidiary became the only manufacturer of a complete line of highly innovative materials used in “closed” orthopedic surgery. This revolutionary technique is used frequently by athletes, but is increasingly available to the general public. It employs fiber optic techniques to heal damaged cartilage. The growing demand for this revolutionary procedure found Dyonic products at a market premium.
While Rorer continued to increase earnings and profits while maintaining small longterm debts, Eckman simply could not rest on his laurels. Instead he prepared himself to thwart any attempt of a hostile takeover. In 1983 a group of stockholders owning 13% of the company hired the investment firm of Oppenheimer & Company in an attempt to sell Rorer to an interested customer.
While this was not the first time rumors of takeover bids had reached Eckman (according to him every major pharmaceutical company had approached the idea of acquiring Rorer at some point in the past), this new attempt marked a concerted effort by Rorer stockholders. One interested stockholder was George Behrakis, a founder of Dooner Laboratories, who became an owner of Rorer stock when his company was acquired by the pharmaceutical manufacturer. He felt dissatisfied with the performance of his asthma treatment drug since it had been purchased by Rorer, Eckman, however, appeared unperturbed by the stockholder revolt; according to him hostile takeovers were inappropriate in the pharmaceutical industry. Nonetheless, he asked for the approval of a 66% increase in authorized shares; this action could effectively prevent any takeover attempt by making the company large enough to become too expensive to purchase.
In 1984 Rorer celebrated its 75th year in business. Sales in 1983 had reached $475 million and projections suggested the figure would reach one-half billion by the end of that year. New acquisitions included: Kremers-Urban, a pharmaceutical concern that manufactured an ointment to control angina, the medical products division of Black & Decker, and Omni Hearing Aid Systems.
Despite continued growth, by 1985 a full-fledged proxy fight to acquire Rorer and replace management put Eckman on the defensive. Parker Montgomery, chairman and chief executive officer of Cooper Laboratories, attempted to persuade Rorer shareholders over to his side for a possible takeover. Sales at Cooper Labs, a manufacturer of contact-lens and eye-care products, had reached $256 million. Apparently, merger proposals had been offered by both Eckman and Montgomery, but when personalities clashed and disagreements over terms became insurmountable the negotiations were discontinued. Cooper then filed, for the second time, an antitrust notice announcing an intention to increase its 4.96% share of stock to 15% in Rorer.
In order to prevent this Rorer’s board members adopted a “Poison Pill,” otherwise called a Share Purchase Rights Plan. This plan deterred hostile takeover bids by forcing the purchasing company to issue stock of its own to stockholders of the targeted company at a price worth twice what it would be getting in return. Should Cooper offer Rorer stockholders $40 a share, for example, the complete deal would not cost a projected $840 million to acquire the total 21 million shares, but rather a prohibitive $1.9 billion due to the prescribed rules of the “Poison Pill.”
Eckman, claiming the “plan” protected shareholders from “uneven treatment by a corporate raider,” issued the plan on February 25th. While a shareholders meeting scheduled for late April would vote on the Montgomery “anti-pill” referendum, that very same day in February Cooper sought reprisal by suing Rorer in an attempt to invalidate the “pill” in court. Securities and Exchange Commission attorneys had recently argued that similar plans effectively “entrench management and usurp... to (a company’s) board the shareholders right to determine who will manage the company.” Montgomery hoped this same argument could be used to render Rorer’s “Poison Pill” ineffective.
On April 23, at Rorer’s annual stockholder’s meeting, of 82% of the shares voted 51.46% favored Montgomery’s “anti-poison pill” resolution while 42.08% voted against the plan in favor of management. Although the resolution was “non-binding,” stock prices jumped two points in anticipation of what many believed would be an imminent decision made by the board in favor of the “anti-pill.” Montgomery interpreted the vote as an unequivocal victory; his $1.5 million proxy battle had, according to him, been a successful fight to maintain “corporate democracy.”
By January of 1986, however, over six months after Eckman had retired as chief executive officer (while still maintaining his position as chairman of the board), Rorer’s directors chose to ignore Montgomery’s slim majority and continue to utilize the “Poison Pill.” Montgomery’s takeover attempt, for the time being, was defeated. Yet no sooner had this ended, when rumors of another takeover attempt put Rorer management back on the defensive. Even though the company’s balance sheet now reported a $735 million long-term debt due to the recent purchase of Pantry Pride, Revlon’s ethical drug unit, the company’s huge drug volume made it an attractive takeover candidate. Arrangements for the takeover were tentatively made by a wide range of potential suitors. Included in the list were: Alan Clore, a British investor who had recently made a $50 million profit from his 6.5% stake in the Revlon sale to Rorer; Parker Montgomery, now searching for possible support from a larger company (those rumored as possibilities were Beecham Group, Glaxo Holdings or Boots Company); international companies seeking to secure a foothold in the U.S. market; and domestic companies such as Pfizer. Rorer spun around in a vortex of increasing rumors and growing speculation. However, the new chief executive officer Robert Caw-thorn, remained calm. His company, he claimed, had been the subject of many rumors in the past, but never yet had the situation reached a “bidding stage.”
Rorer management has been criticized for its tactics in preventing takeovers. Cawthorn, however, has replied that it is in the best interest of the shareholders for the company to maintain its independence. Since earnings were depressed due to the company’s recent purchases, shareholders will not begin to benefit from Rorer’s growth until 1987. Yet stockholders, knowing a possible $50 per share could be earned in the event of a takeover, may now be less willing to wait for earnings to increase and more inclined to favor the immediate benefits accrued from selling their independence.
William H. Rorer, Inc; Surgical Products; Rorer International Corp.