NeighborCare officials stand to get up to $38 million from sale

CEO's payout may reach as high as $18.4 million

July 27, 2005|By M. William Salganik | M. William Salganik,SUN STAFF

Executives and directors who have led NeighborCare Inc. through its brief life as a public Baltimore company stand to collect as much as $38 million when the company is sold, according to a NeighborCare filing yesterday with the Securities and Exchange Commission.

John J. Arlotta, the chairman, president and chief executive officer, would pocket the most: $3.6 million in severance if he is terminated. He would also get $14.8 million for his NeighborCare stock options, regardless of his job status with Omnicare Inc., the new owner.

The filing also warns that "very preliminary analysis" shows that NeighborCare's earnings for the fiscal year that ended June 30 could be as much as 10 percent lower than management had projected.

"Due to the timing and preliminary nature of this information, management has not made a determination to change its projections," the filing said.

According to the filing, nine other directors and executives would collect nearly $20 million by cashing out stock options.

Like Arlotta, they would get that payout whether or not they're kept on by Omnicare, the Kentucky company that is buying NeighborCare.

The amounts represent the difference between the exercise price of the options and $34.75 - the share price at which Omnicare agreed to buy the company.

Four of those executives would get a total of $2 million in severance if they are terminated.

Omnicare hasn't indicated what plans it has for current NeighborCare employees and executives, but analysts have predicted that Omnicare will shut down most or all of NeighborCare's headquarters operations. That could mean the loss of 500 jobs.

Neither company could be reached for comment yesterday after the filing, which became public after the stock markets closed.

NeighborCare this month concluded a $1.8 billion deal to sell the company to Omnicare, a persistent suitor that the Baltimore institutional pharmacy had spurned for more than a year.

That sale is expected to close in the current quarter. It is contingent on at least 80 percent of NeighborCare shareholders agreeing to turn in their stock for $34.75 a share, a near certainty, analysts said.

Both NeighborCare and Omnicare are primarily in the institutional pharmacy business - filling prescriptions for residents in nursing homes and assisted- living facilities.

Omnicare is the largest in the country, controlling about 35 percent of the institutional pharmacy market. NeighborCare's market share is estimated at 12 percent, so the combined companies would control nearly half the market and generate $6 billion a year in revenue.

NeighborCare began in Baltimore in 1980 as a single retail pharmacy and still maintains about 30 retail stores, most in the Baltimore area. Over time, however, it began to concentrate on the nursing home pharmacy business. In 1996, it was sold to Genesis Health Ventures Inc., a nursing home chain.

NeighborCare split off from Genesis in December 2003. Arlotta, who had joined Genesis shortly before the breakup, became CEO.

Robert H. Fish, CEO of Genesis before the split and a NeighborCare board member, will get $8.7 million as his stock option cash-out, according to the filing.

Severance payments and vesting of stock options are common for executives of companies being acquired.

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