Bankrupt firm’s subsidiary to buy CPEX

A subsidiary of a bankrupt New Jersey shoe company has agreed to buy CPEX Pharmaceuticals Inc., an Exeter, N.H., firm that develops alternative drug delivery systems. The price is $77.6 million, or $27.25 a share, the companies announced Tuesday morning. Footstar Inc., which has $10 million in cash and is in the process of liquidation, owns 80.5 percent of the subsidiary, FCB Holdings. FCB will buy CPEX through another subsidiary in a deal that would close in the second quarter of this year, if it is approved by shareholders of both companies. It’s unclear at this point what will happen to CPEX’s Exeter facility or the 13 employees working there. It also is not clear how a bankrupt company can afford the purchase. Calls to Footstar were not returned by deadline. What is clear is that CPEX shareholders, especially those who held on to the stock after the company was spun off from Bentley Pharmaceuticals in the summer of 2008, will benefit. The proposed sale price is nearly double the $14.80 share price at the time of the spinoff. It also is 11 percent over the closing price on Monday and 142 percent over the price offered back in Jan. 7 of last year, when activist shareholder Richard Rolfe announced a hostile takeover attempt, CPEX pointed out. Stockholders will realize the premium despite the company’s failure to develop Nasulin, an insulin nose spray, which generated shareholder interest in the company in the first place. Instead, it decided to concentrate on marketing Testim, topical application of testosterone, a policy Rolfe advocated in his takeover attempt. In CPEX’s last quarterly statement, the company reported $5.7 million in sales with a net income of $2.4 million, and total assets of nearly $30 million, with $18.7 million in cash. Footstar, the New Jersey company that once operated leased footwear departments for Kmart and Rite Aid, and offers shoes under brands like Thom McAn, Cobbie Cuttlers and Texas Steers. After Footstar filed for Chapter 11 bankruptcy protection in 2004, it sold its retail stores to Foot Locker, and ceased all operations in 2008. It is currently winding down its business. At the end of September, the company had declared liquidating cash distribution totaling $1.2 million to shareholders – about 5 cents a common share. As of Oct. 2, it had cash of $10.2 million. “We plan to sell or liquidate any remaining assets and pay all of our known and undisputed liabilities and obligations,” Footstar said in its latest filing with the SEC. According to the company’s release on Tuesday, Footwear and its coinvestor in FCB Holdings — Black Horse Capital LP, a large CPEX shareholder — would provide $3.2 million and $800,000 in equity financing. In addition, FCB agreed to provide a $13 million secured bridge loan, and other parties have agreed to provide debt financing in the form of a $64 million secured term loan. Within an hour of the merger agreement announcement, Kendall Law Group announced that it planned to investigate the transaction to see if it was in the best interests of shareholders. CPEX declined comment on the investigation. — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW