RTI to Buy Smith Labs Unit
Cash-rich Smith Laboratories has signed a letter of intent to sell its only operating unit, Sutter Corp., an orthopedic rehabilitation therapy products company, to Rehabilitation Technologies Inc. of San Diego for $12 million.
RTI is headed by William Eisenecher, who until October, 1987, was Sutter’s president. He founded RTI last year with venture capital from Allstate Venture Capital, a division of Allstate Insurance, and Essex Venture Partners, both of Chicago. RTI has been looking for acquisitions ever since. The venture firms are also providing funds for the Sutter acquisition.
Several companies in addition to RTI made bids for Sutter, Smith Laboratories Vice President of Finance Gary Moranz said Thursday. Smith, a publicly traded holding company, made a “strategic decision” to sell Sutter because growth of the unit required more capital than Smith chose to invest, he said. The sale is scheduled to be completed by January, 1989.
Sutter manufactures and markets continuous passive motion rehabilitation orthopedic products as well as orthopedic implants. The continuous passive motion devices are used by surgical patients to keep arm and leg joints from becoming stiff. All but seven of Smith’s 105 employees work at Sutter, Moranz said. Sixty of those employees are in San Diego.
For the nine months ended July 31, Smith reported a loss from continuing operations of $8,000 on revenue of $9.3 million. Interest income of $1.5 million from Smith’s cash hoard of $39 million pushed net income for the three quarters up to $735,000.
Moranz said Smith has been trying to spend its cash on an acquisition or merger but that logical deal candidates have been scared away by the several million dollars in outstanding product liability lawsuits that were lodged against Smith in connection with a product line that Smith has since sold.
The product, an enzyme called chymodiactin introduced in 1982 that was used to dissolve herniated disks, was sold to Baxter International. Moranz said Smith’s maximum uninsured liability from the lawsuits has been estimated at $5 million, which the company has made provisions for.
Because of the lawsuits, Smith Laboratories’s stock has been selling lately at less that its cash-per-share value of about $2.96 per share, Moranz said. Smith Laboratories stock closed at $2.375 in over-the-counter trading Thursday.
