VLI Corp., the Irvine contraceptive sponge maker, said Monday that it has agreed to be acquired by American Home Products Corp., a multibillion-dollar pharmaceutical and consumer-products company, in a deal valued at about $86 million.
The $7-per-share buyout, unanimously approved by VLI's board Sunday, caps nearly a year of efforts by the company to find a secure home for both its innovative medical technology and its growing line of over-the-counter personal-care products. The acquisition is expected to be completed by the end of the year.
As part of American Home's Whitehall Division, VLI's over-the-counter brands of vaginal contraceptives, pregnancy and ovulation test kits and condoms will join a group of products that includes a who's who of the average U.S. medicine chest: Anacin, Dristan, Preparation H and Advil.
VLI officials said further research into using the company's patented sponge technology to treat vaginal infections and sexually transmitted diseases would be conducted through American Home's Wyeth and Ayerst Laboratories division, a unit that already markets several prescription-only medicines, including female hormone treatments and oral contraceptives.
"We feel very good about this, because both sides of our business have been taken care of," said Robert Elliott, VLI's chairman and chief executive officer.
Wall Street signaled its approval, as well.
With 1.5 million shares changing hands Monday, VLI stock jumped $1.375, to close at $6 in over-the-counter trading. American Home shares closed at $93.75, up $1.75 for the day, on the New York Stock Exchange.
Analysts, too, praised the deal as a potentially sound business combination in the future.
Still, they noted that the $7-a-share price, although considerably higher than VLI's recent trading range, was not as great as early investors in the high-flying company had once expected. The company went public in September, 1983, at $13 per share and shot up to its all-time high of $26.75 within two months.
But when the Today sponge was briefly linked to toxic shock syndrome in December, 1983, VLI went into a tailspin. Although its sales and stock price eventually stabilized, the company was forced to spend millions on ads to overcome the negative publicity.
By mid-1987, advertising costs had reached $21 million, and the company had managed to post just two profitable quarters.
However, American Home officials said they are interested in the market strength and name identification that the Today sponge has won in the last four years. The product, a spermicide-treated foam sphere worn internally, has about 25% of the over-the-counter market for female contraceptives.
"It's an entry for us into the over-the-counter contraceptive business," said William Emswiler, American Home's treasurer.
In addition, Emswiler said, his company is interested in pursuing the potential of using the sponge as an internally worn delivery system for medicines to treat vaginal diseases.
Elliott said VLI was initially contacted last week by American Home representatives about a potential acquisition. He said he flew to the company's New York headquarters Friday, struck a deal Saturday and flew back to Irvine in time for a Sunday board meeting to ratify it.
Still to be resolved, however, is how VLI's 150 employees and its Irvine manufacturing plant will be integrated into American Home's national operations.
The American Home acquisition represents the second time VLI has been courted by a major U.S. medical-products company. Last November, the company engaged in serious acquisition discussions with what Elliott would describe only as a "Fortune 100 company."
But the talks stumbled over potential product liability for the Today sponge and were called off following the U.S. Supreme Court's upholding of a $4.2-million judgment against Johnson & Johnson's Ortho Pharmaceutical Co. subsidiary. The unit's Ortho-Gynol contraceptive jelly was blamed for the multiple birth defects of a couple's daughter.
AMERICAN HOME PRODUCTS AND VLI AT A GLANCE
American Home Products Corp. VLI Corp. Headquarters: New York Irvine 1986 Sales: $4.7 billion $17 million 1986 income (loss): $778.8 million ($4.9 million) Employees: 47,300 200 Products: Drugs, foods, household Contraceptives products medical supplies Shares Outstanding: 148.5 million 11.7 million Latest Stock Price: $93.75, up $1.75 (NYSE) $6, up $1.375 (OTC)